A detailed note from Macquarie bank on the US dollar and Japanese yen, in summary:
(bolding mine)
Bank of Japan tightening continues
- JGB buying slows further … BOJ seems keen to let the 10y JGB yield rise towards +20bp over time
- the recent policy decision to widen the 10y trading band looks increasingly like a rate hike that will be administered gradually over the coming months
Stealth tightening
- USDJPY has paid little attention so far, largely because this story has unfolded so slowly
- BoJ's skilful communication has also preserved the prevailing sense of calm, while Fed normalisation has been a helpful distraction.
Beware the cumulative effect
- JGB yields have risen meaningfully
- As the tightening continues from here, some mild downward pressure on USDJPY could develop
More acute issues are building too
- Other factors like the state of global sentiment and the Fed's posture
- Risk appetite is corroding as Fed quantitative tightening reabsorbs central bank liquidity
- Isolated flare-ups in pockets of EM are now spreading across risk markets more general
- AUD has already softened, but USDJPY has been remarkably docile so fa
More Fed hikes are still in the pipeline
- has kept USDJPY propped up for now
- But we expect an imminent shift in the tone of Fed communications
- Sept 26th FOMC statement is likely to acknowledge that policy settings are no longer "accommodative"