USD/JPY is dangling above the uptrend-defining 55-DMA and last week's low at 110.58 heading into tonight's expected BOJ tweaks to QQE and yield curve control policies that have forced long-term JGB yields and the JPY higher, but a USD/JPY breakdown is likely to be limited unless Friday's U.S. jobs data are weaker than expected.
Any YCC target adjustment to steepen the JGB yield curve to help banks, amid lowered inflation forecasts, will be a rounding error compared to Fed rate rises slated for the next year unless the hot U.S. economy cools more than forecast in H2.
BOJ's signaling of a policy change has actually drastically increased QE needed to keep 10-year JGBs near the current 10bp ceiling and is thus less JPY bullish than it appears.
The bigger issue is that 10-year Treasury-JGB yield spreads at 288bp are off July and May lows, but well below the 305bp May peak because demand for notes above 3 percent remains brisk as some see Fed funds topping out near there to limit risk of yield curve inversion.
Thus, U.S. data and Fed policy remain key USD/JPY drivers.
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