Yen Remains On Tear

The yen was the big mover in G10 FX space again, with USD/JPY extending losses into the Tokyo fix. The rate sank as low as to Y132.07 before trimming some losses and last sits ~70 pips below neutral levels. The move seemed to be a continuation of dynamics that were in play towards the back end of last week, with participants exiting short JPY positions amid recent reduction in hawkish Fed bets, with some fresh demand for safe havens amplifying demand for the Japanese currency.

• USD/JPY 1-month risk reversal remained heavy, printing its worst levels since Jul 14 at one point, indicating bearish sentiment among options traders. Elsewhere, Bloomberg circulated latest CFTC data showing that leveraged funds have cut net-short futures/options position on JPY to the lowest since Mar 2021, citing market talk to the same effect.
• Reports did the rounds last Friday that Japan's government approved a guideline for the FY2023 budget that "will allow ministries to make request as appropriate to respond to currency swings," another indication of officials' discomfort with rapid yen depreciation this year.
• The yen likely capitalised on its safe haven status on Monday, as participants digested disappointing manufacturing PMI data out of China and examined reports of geopolitical tensions in the Balkans and the Taiwan Strait. While most regional equity benchmarks firmed, with a positive lead from Friday's Wall Street session lending support, e-mini futures stayed in the red.
• Riskier currencies generally went offered, albeit the NZD stood out, beating all G10 peers save for the yen. The kiwi may have been helped by AUD/NZD sales in response to weak Chinese data. The Antipodean cross slid below the NZ$1.1100 mark, with activity in Australia limited by a New South Wales holiday.
• Risk-off flows were evident in the price action of European FX, albeit liquidity was obviously limited in the Asia hours. The Swiss franc was the strongest performer in the region.
• Manufacturing PMI readings from across the globe will keep trickling through over the coming hours. Other notable data releases include U.S. construction spending, Eurozone unemployment & German retail sales.