Yen Remains Vulnerable Amid Rising U.S. Tsy Yields

Wednesday was a bullish inside day for USD/JPY, as the rate edged higher but struggled to advance towards recent cyclical highs.

• U.S. Tsy yields remained the key driver of USD/JPY. Their upswing in late NY hours underpinned a leg higher in the pair. U.S./Japan 10-year yield spread widened ~9bp, while 2-year gap grew ~5bp come the end of the day.
• The move higher in U.S. Tsy yields reignited demand for the rate, despite a below-forecast ADP employment print, which applied some pressure to the dollar earlier.
• From a cross-asset perspective, equities continued to trade on a softer footing, with European & U.S. benchmark indices losing ground. Still, the VIX index slipped.
• Spot USD/JPY last trades at Y139.11, up 15 pips on the day. The high print of Jul 14/next round figure provide the initial layer of resistance at Y139.39/140.00. Bears look for a retreat under Aug 23 low of Y135.82.
• Budget requests by Japanese ministries and agencies for FY2023 amounted to Y110tn, with defence spending set to reach a record high, Kyodo News reports. This falls in line with earlier press reports.
• The local data docket is headlined by Q2 capex & company profits/sales as well as the final reading of August Jibun Bank M'fing PMI.