USD/JPY: Persistent JPY bearish trend intact despite growing intervention...

• Tokyo’s core-core ostentation for April came successful astatine 1.8% y/y, its slowest gait of summation since September 2022 & beneath BoJ’s ostentation people of 2%.
• The latest acceptable of softer-than-expected Tokyo’s CPI whitethorn propulsion backmost the timing of the adjacent BoJ’s involvement complaint hike.
• Widening of US Treasuries-JGBs output dispersed premium is apt to enactment a further imaginable upmove successful the USD/JPY.
• The existent upmove successful USD/JPY since mid-March 2024 has been accompanied by a little volatility information versus its much abrupt rallies seen from July 2022 to September 2022 that triggered the existent FX involution from MoF successful October 2022.

This is simply a follow-up investigation of our anterior report, “USD/JPY Technical: Rising US Treasury-JGB output spreads outweigh BoJ’s involution risk” published connected 11 April 2024. Click here for a recap.

The terms actions of USD/JPY person continued their relentless upward ascent and breached supra the 155.00 science level connected Wednesday, 24 April, and cleared supra the anterior June 1990 plaything precocious of 155.10. The US dollar added gains of +0.2% against the JPY by the extremity of yesterday, 25 April US league to deed a caller 52-week precocious of 155.75.

So far, the USD/JPY has rallied by astir +660 pips (+4.4%) from the humanities Bank of Japan’s (BoJ) monetary argumentation determination connected 19 March 2024 to extremity its 8 years of short-term antagonistic involvement complaint policy, hiked its overnight telephone involvement complaint to 0-0.1% for the archetypal clip successful 17 years and scrapped the 10-year Japanese Government Bond (JGB) output curve power program.

In today’s aboriginal Asian session, the USD/JPY traded sideways successful a choky scope of 10 pips arsenic marketplace participants hold for the latest monetary argumentation determination and economical outlook study merchandise from BoJ astatine astir 0300 GMT today.

The statement expects nary alteration to the overnight telephone argumentation involvement complaint and a flimsy upward revision to its median projected core-core (excluding caller nutrient and energy) ostentation successful Japan to 2% y/y from 1.9% y/y for fiscal years 2024 and 2025.

Timing of the adjacent BoJ’s hike clouded by brushed Tokyo’s core-core CPI

However, the timing of the adjacent BoJ’s involvement complaint hike whitethorn get a spot “complicated” arsenic the latest Tokyo ostentation information for April (out earlier today) slowed down from the erstwhile period and came successful beneath expectations. Tokyo’s core-core ostentation complaint (excluding caller nutrient and energy) inched little to 1.8% y/y successful April from 2.9% y/y printed successful March, beneath the statement of 2.7% y/y, its slowest gait of summation since September 2022.

It is considered a large astonishment that Tokyo’s core-core inflationary trend, often cited arsenic a starring indicator of the Japan nationwide CPI has slipped beneath BoJ’s ostentation people of 2%, wherever officials successful the past 2 months person expressed “high confidence” that Japan system has managed to exit from its decade-plus of deflationary spiral situation with unchangeable inflationary maturation astatine astir 2% going forward.

Hence, BoJ Governor Ueda’s property league aboriginal contiguous aft the adjacent of the Japan banal marketplace league volition apt beryllium pivotal arsenic helium is apt to beryllium “quizzed” connected whether the brushed Tokyo CPI people is the commencement of a caller inclination oregon conscionable an outlier. His guidance connected however assured BoJ’s presumption connected Japan’s inflationary inclination successful airy of this caller acceptable of information mightiness shed airy connected whether this July is inactive “live” for the adjacent BoJ’s involvement complaint hike.

Intervention to fortify the JPY whitethorn beryllium ineffective astatine this juncture

Fig 1: US Treasuries/JGB output spreads medium-term trends arsenic of 26 Apr 2024 (Source: TradingView, click to enlarge chart)

In the past 2 weeks, determination has been a slew of verbal interventions from Japan’s Ministry of Finance officials to speech down the US dollar spot arsenic the USD/JPY has cleared supra the anterior 151.95 level wherever Japan authorities enacted an existent FX involution connected 21 October 2022, and spent adjacent to US$60 cardinal to merchantability the US dollar against the JPY.

During that constituent successful clip successful precocious October 2022, the gait of the summation of US Treasuries yields started to dilatory down which reduced its output premium implicit JGBs yields. Hence, it reinforced the effectiveness of Japan’s FX involution to thrust down the USD/JPY by -16% successful 3 months to deed a debased of 127.22 connected 16 January 2023.

In the existent context, adjacent though the yields of the JGBs person accrued importantly since the past BoJ monetary argumentation gathering successful March wherever the 2-year JGB output rocketed to 0.3% astatine this clip of the writing, a 34-yer precocious from adjacent to 0% astatine the commencement of the year.

However, US Treasury yields roseate astatine a faster gait than JGB yields owed to a overmuch stickier and elevated inflationary inclination successful the US that evaporated the earlier highly anticipated Fed dovish pivot communicative embraced by marketplace participants astatine the commencement of 2024.

The output dispersed premium betwixt the 2-year and 10-year US Treasuries implicit JGBs has further widened by astir 40 ground points (bps) since 11 March 2024 which successful crook supports a weaker JPY implicit the US dollar (see Fig 1).

Lower volatility question of USD/JPY successful the past 5 weeks

Fig 2: USD/JPY large inclination arsenic of 26 Apr 2024 (Source: TradingView, click to enlarge chart)

The caller verbal interventions from Japanese MoF officials person centred connected the monitoring of volatility question successful the FX markets for immoderate signifier of “undesirable movements which implied that existent involution mightiness instrumentality signifier if movements of USD/JPY go abrupt.

Interestingly, the upmove of USD/JPY from the week of 11 March 2024 has been accompanied by a comparatively little volatility information measured by a 4-week moving mean of its play scope (highest and lowest terms points).

In contrast, the 4-week play scope of USD/JPY accrued importantly during the play from July 2022 to September 2022 earlier the existent FX involution occurred successful October 2022 (see Fig 2).

Therefore, MoF whitethorn not intervene successful the FX marketplace fixed specified a little volatility information that has accompanied the existent large uptrending signifier of USD/JPY.

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