I posted earlier on the bank's view on usyen USD/JPY and thoughts on the BOJ.
More now on the yen:
USDJPY has curiously broken from 10yr UST yields and the NKY. This could be due to a few factors
- First, the JPY may be enjoying a bid owing to a potential policy shift. If realized, it would de-link the JPY/10yr UST yield correlation.
- Second, USD shorts have been concentrated against the EUR, so that the market may be rotating this exposure against the JPY.
- Third, the backup in long-end yields may also reflect the lack of buying interest from Japanese accounts and incoming supply fears. With 10yr yields flirting with a triple-top formation near the 2.60- 2.65% zone, an area that has previously acted as a brick wall of resistance over the last 12m, political tumult could be risk-off and leave a sharp pullback.
- Meanwhile, GPIF target allocations have been reached, leaving USDJPY acutely vulnerable to portfolio rebalancing or de-risking in a spike in equity vol.