Japanese Yen, USD/JPY, Bank of Japan, Sentiment, Technical Outlook: Talking Points
- Asia-Pacific stocks face headwinds from higher Treasury yields to close the week
- Japanese inflation data in the spotlight as large volume of options trades set to expire
- USD/JPY above 150 puts traders on alert for potential BoJ market intervention
Asia-Pacific Outlook on Friday
Asia-Pacific stocks point to a mixed open as higher yields in the US weigh on global sentiment. The Wall Street trading session did not offer much hope for traders. The benchmark S&P 500 index fell 0.8% on Thursday. Treasury yields increased along the curve, but more along the longer end, reducing the 10-year/2-year yield gap inversion to around -38 basis points. While maximum hawkishness appears to be the current view in overnight index swaps and fed funds futures, hawkish comments from several FOMC members spooked equity investors.
Sterling gained after news of Liz Truss’s resignation plans crossed the wires, but the initial strength ebbed and GBP/USD traded almost flat shortly after the New York closing bell. A new successor can be appointed as soon as Monday, with the main candidates seen in Boris Johnson, yes… the former prime minister who was recently ousted, and Rishi Sunak, among others. Ms. Truss’s resignation likely ends the gilt market turmoil.
This morning, South Korea’s Producer Price Index (PPI) for September crossed the wires at 0.2% from the previous month, versus -0.4% in August, indicating an increase in prices in factory gate. New Zealand Trade Balance is due this morning. The weak Kiwi dollar has added costs to imports, and the deficit may continue in the short term. The island nation posted a $2.4 billion deficit in August. A widening deficit would likely weigh on the NZD.
Japan’s September consumer price index (CPI) is expected to cross the wires at 3.0% from a year earlier. That would be a 2.8% increase 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 a twelfth day, an impressive feat. With USD/JPY above 150, we can probably expect Japanese politicians to scoff aggressively.
Japanese Yen Technical Outlook
USD/JPY is now above the 150 level but barely. The BoJ may choose to intervene around these levels, but technically, it looks like prices are going to pull back in the short term. That could mean a brief dip in the rise of the 9-day EMA, which has supported prices since August. The Relative Strength Index hit its highest levels since early 2022, reflecting JPY’s aggressive selling over the past 12 days.
USD/JPY daily chart
Chart created with TradingView
— Written by Thomas Westwater, Analyst at DailyFX.com
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