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Sep 25 - 12:12 PM
USD/JPY - COMMENT-BOJ's Curve Call Props USD/JPY, But Trade, US Yields Remains Key
First appeared on eFXplus on Sep 25 - 10:50 AM

USD/JPY is getting an extra lift amid today's broader USD rebound due to BOJ-guided JGB bull yield curve steepening nL3N26G1N9.
However, gains are likely to be limited if U.S.-China trade talks don't produce more than just marginal, self-serving tariff exemptions and tariff rate increase delays.
BOJ's Kuroda has convinced JGB participants that the central bank is ready to cut back purchases of long-term JGBs and reduce short-term rates as the fallout from the U.S.-China trade war takes its toll nL3N26F1R1.
The BOJ will also be watching for a let-down in local demand after the October consumption tax hike hits.
Today's 40-yr JGB auction tailed badly and 5-year JGB yields hit a record low.
The 5-40-year rate spread has rebounded 30bps since September 4 to its highest since May 7.
But USD/JPY and that yield spread don't correlate nearly as positively as 10-year Treasury-JGB spreads do, because Treasury yields move far more than JGB yields that are straddling zero.
In any event, the main thing driving Treasury yields this year are trade tensions, and these appear more, not less, heightened after Trump's UN speech Tuesday nL2N26F0WB, the Chinese response today nL2N26G02O and new U.S. sanctions on Chinese firms nL2N26G0DI.
Meanwhile, a U.S.-Japan trade deal is supposed to be announced today nL3N26G26R.
If autos aren't in it, trade angst will linger and limit USD/JPY upside.


Chart: Click here

Chart: Click here

Source:
Refinitiv IFR Research/Market Commentary

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