USD/JPY: Yield spreads are suggestive of further JPY strength  - Scotiabank

Eric Theoret, FX Strategist at Scotiabank notes that JPY has outperformed and yield spreads are suggestive of further strength, while technicals support the view.

Key Quotes

“JPY is outperforming, rising to levels last seen in early July. JPY risk is elevated and biased to strength as we note the market’s muted response to the official announcement of PM Abe’s long-anticipated fiscal stimulus plan. The reaction follows last week’s post-BoJ disappointment, shifting the focus back to broader developments following a multi-week period in which domestic risk has driven much of the movement in JPY.”

“Yield spreads are suggestive of further JPY strength and risk reversals hint to a rise in demand for protection against upside risk.”

“USDJPY short-term technicals: bearish—momentum signals are bearish and DMI’s are confirming a shift in the balance of risk. The 9 day MA appears poised to break below the 21 day MA and USDJPY appears set to test the July 11 open at 100.43.”