Japanese Yen, USD/JPY, Bank of Japan, Sentiment, Technical Outlook – Talking Points
- Asia-Pacific stocks face headwinds from rising Treasury yields to close the week
- Japanese inflation data takes center stage as heavy volume of option trades set to expire
- USD/JPY above 150 puts traders on alert for possible BoJ intervention in the market
Friday’s Asia-Pacific Outlook
Asia-Pacific stocks eye a mixed open as rising US yields weigh on global sentiment. The Wall Street trading session did not offer much hope to traders. The benchmark S&P 500 index fell 0.8% on Thursday. Treasury yields rose across the curve, but more at the long end, which dampened the reversal of the 10-year/2-year yield spread to around -38 basis points. While peak hawkishness appears to be the current view on overnight index swaps and fed funds futures, hawkish comments from several FOMC members have spooked equity investors.
The pound gained after news of Liz Truss’ plans to quit crossed the wires, but initial strength was reduced and GBP/USD traded nearly unchanged shortly after the New York closing bell . A new successor could be named as early as Monday, led by Boris Johnson – yes… the recently ousted former Prime Minister – and Rishi Sunak, among others. Ms. Truss’s resignation likely ends the turmoil in the Gilt market.
This morning, South Korea’s Producer Price Index (PPI) for September crossed 0.2% from the previous month, from -0.4% in August, indicating higher prices ex factory. New Zealand’s trade balance is due this morning. The weakness of the Kiwi dollar has added costs to imports and a deficit could continue in the short term. The island nation posted a $2.4 billion deficit in August. A growing deficit would likely weigh on the NZD.
Japan’s Consumer Price Index (CPI) in September is expected to break through 3.0% year-on-year. That would be up from 2.8% in August. As with New Zealand, a weak yen adds inflationary pressures, complicating the Bank of Japan’s monetary efforts. The yen is on track to weaken against the dollar for the twelfth day, an impressive feat. With USD/JPY above 150, we can probably expect an aggressive jaw from Japanese policymakers.
Japanese Yen Technical Outlook
USD/JPY is now above the 150 level but just barely. The BoJ may choose to intervene around these levels, but technically prices look set to pull back in the short term. This could mean a brief dip in the rising 9-day exponential moving average (EMA), which has supported prices since August. The Relative Strength Index reached its highest levels since the start of 2022, reflecting the aggressive selling of JPY over the past 12 days.
USD/JPY daily chart
Chart created with TradingView
— Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwater on Twitter