JPY Trading Outlook
USD/JPY Most of the USD/JPY's intraday fall from o/n highs came before 8:00 AM ET, with the dollar struggling against most currencies to start the week. The nearly 4% rebound in the N225 o/n left the yen weaker on almost all the major crosses and the N225 futures London pullback was followed by a mild rise on NorAm trading, but falling USD-JPY yield spreads kept USD/JPY heavy, even after the large 10ET expiries between 106.75/90. The 107.39 highs stopped just shy of the Oct 15 breakdown session high, as well as the daily Kijun & 50% of the Oct slide at 107.64. With prices today homing back down to the Tenkan at 106.97 and falling further below the Kijun, the risk is for a test of the daily Cloud top, Tuesday at 105.39. Of course much of the yen's re-risking dip & the Nikkei's rise o/n was bolstered by reports GPIF will eventually raise its stock allocation above what most were expecting and that the Abe govt is getting cold feet on raising the VAT again next year. Neither event would be shocking, but neither has been confirmed, and both have potential drawbacks. O/S bounces in the yen crosses look like mean reversions. China data key tonight.
USD/JPY The N225's vast under-performance vs the S&P 500 has continued at week's end, despite the rebound in USD-JPY yield spreads, which leaves the USD/JPY recovery on somewhat shaky ground. The inability to offer USD/JPY below 105, the then daily Cloud top, has allowed prices to rebound with aberrantly low Tsy yields, but prices will need the N225 to eventually joined the yield spread rebound to keep them rising. The risk is that the daily Kijun and 50% of this month's slide at 107.64 will cap this recovery and the Cloud will come in for a second test. Today's TR/UM Confidence report gives the USD rebound some credibility, but back-tracking on potential rate hikes next year from some Fed members has to be factored in. On the Japanese side, a failed T-bill buying operation today suggested one of the reasons the BOJ has been adamant about not upping its QE, despite slow reflation progress and post-tax-hike economic weakening, is that the current buying is already bumping into deployment boundaries. Nikkei reported Abe's new Ind Min, Obuchi, is under investigation for funding irregularities. Abe's 3rd arrow political capital may be diminishing
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