Yen Underperforms Amid Wider U.S./Japan Yield Spreads

The yen weakened in the interim between the BoJ's monetary policy decision last Friday and this Wednesday's Fed meeting. Japan's central bank left all main parameters of its ultra-loose stance unchanged and reinforced its dovish messaging by upping the frequency of bond-purchase operations used to enforce the YCC framework. By contrast, the FOMC is expected to raise the fed funds rate by another 75bp this week.

• Spot USD/JPY ran as high as to Y148.28 before trimming gains to last change hands at Y147.81. One-week option skews held gains registered last Friday in a strong rebound from near-cyclical lows. U.S./Japan yield differentials expanded, with 2-year gap last 3.0bp wider & 10-year spread 1.9bp wider.
• The pullback in USD/JPY may have been facilitated by worse than expected official Chinese PMI outturns, with the non-manufacturing gauge unexpectedly plunging into contractionary territory. Spot USD/CNH fluctuated in positive territory as the session progressed and last deals ~210 pips better off.
• The Antipodeans traded on a firmer footing ahead of the RBA's cash rate target decision tomorrow, defying the negative lead from China's PMI figures.
• Eurozone GDP & CPI data, German retail sales & U.S. MNI Chicago PMI will take focus on the data front today. ECB's Visco & Lane are set to speak.