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Oct 21 - 04:55 PM

USD/JPY - COMMENT-US Recap: USD/JPY Implosion Steals The Show As Fingers Pointed At MOF

By Randolph Donney  —  Oct 21 - 02:35 PM

The dollar fell on Friday behind a stunning plunge in USD/JPY from a 32-year high of 151.94 down to 144.50, amid what appeared to be waves of Japanese intervention selling mixed with longs being stopped out and a sharp pullback in Fed rate-hike pricing.

Japan's Ministry of Finance declined to comment but the Nikkei newspaper said the government and the Bank of Japan conducted yen-buying, dollar-selling intervention, and officials had previously said that they can take action without making an announcement nL4N31M06AnT9N316013.

And unlike prior USD/JPY pullbacks since the Sept.
22 intervention that officials announced, those buying dips were run through the mill in the spike below the daily tenkan and kijun lines that had previously been supportive.

However, residual demand remains due to very attractive Treasury-JGB yield spreads and starkly bullish divergence between Fed and JGB policies nL1N31M192.

Adding to the broader dollar drop, a Wall Street Journal article Click here raised speculation that the Fed's string of 75bp rate hikes could end with November's meeting, with officials considering how to signal that smaller rate hikes would follow.

Shorter-term Treasury yields and 2023 Fed hike pricing fell.
The market had projected peak rates above 5% but that fell below 4.9% subsequently, with a 50bp December move favored over a 75bp.

San Francisco Fed President Mary Daly later said getting the Fed funds rate up to the 4.5% - 5.0% range next year is reasonable, but noted numerous factors that could influence policy before then nS0N2W5001.

Two-year Treasury yields fell 11bp, earlier hitting a 15-year high at 4.637%.
The drop in yields lifted most riskier currencies, though sterling lagged gains in high betas like the Australian dollar, which was up 1.1%.

Sterling was up about 0.2% versus EUR/USD's 0.5% rise and the roughly 1.2% fall in USD/JPY.
Two-year and 10-year Gilts yields surged 28bp and 23bp as economic and political risk premia rebounded nL1N31M16S, overriding any drag from tumbling UK retail sales, that might have been skewed by the Queen's funeral nL8N31M12K.

U.S.
data thins out into month-end, though ECB and BOJ meetings are on Thursday and Friday.

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary

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