USD/JPY trimmed its gains on Wednesday from the session's one-year high of 110.97 on EBS, due to falling Treasury-JGB yield spreads and pre-Q2 and holiday weekend position flattening after a 4.3% March advance, but bears expecting a bigger correction might have to wait.
There was a bit of a sell-the-news response to big 517k ADP rise nAQN03ZMFS, but the main drag came from month-end duration extension buying of Treasuries and even faster retreat in euro zone bond yields due to more aggressive ECB PEPP purchases and ECB President Christine Lagarde's warning to bond sellers that the bank is ready to keep borrowing costs subdued nL8N2LT2RV.
Because euro zone and Treasury debt compete for buyers, Treasury yields have been dragged lower, particularly against far more stable JGB yields.
Helping JGB stability was the BOJ announcement that April JGB buying will be reduced by 9% nL1N2LT1B7 as part of its new policy of giving 10-year JGB yields a 50bp trading range centered on zero versus the prior 40bp range.
The rapid U.S. pandemic recovery and massive fiscal stimulus is lifting 10-year Treasury-JGB yield spreads this year to pre-pandemic levels.
Though overbought, USD/JPY may yet reach compelling technical targets by 112 before a major correction ensues.
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