JPY: Modest gains intact – BBH

The US dollar's upside correction that began before the weekend has been extended in Asia and Europe today and the main exception is the Japanese yen, notes the research team at BBH.  

Key Quotes

“The yen's modest gains have been registered despite the firmness in US rates and continued advance in equities; both factors associated with a weaker Japanese currency.”

“It seems two other considerations are offsetting the traditional drivers.  First, there is unwinding of long euro short yen positions that had been established.  The euro had rallied from JPY132 in the middle of December to nearly JPY136.65 at the end of last week before posting a bearish shooting star candlestick pattern.  It is now nearing chart support seen near JPY134.35-JPY134.45, which corresponds to a 50% retracement of the three-week rally, the 20-day moving average, and previous congestion.”

“The second consideration today is the BOJ's decision to reduce the buying of long-dated bonds (10-25 years) by JPY10 bln to JPY190 bln.  It is the first reduction since 2016.  The BOJ's yield curve targeting strategy has required it to buy fewer JGBs than the JPY80 trln declaratory objective.  This seems more like a technical adjustment that a substantive policy change.  Many who look for the BOJ to adjust policy this year anticipate a higher target for the 10-year JGB.”