CNH: CNH/JPY Back Sub All Key EMAs, Fresh YTD Lows

As USD/JPY tests above 158.00, focus is likely to rest on how the authorities react. In the aftermath of the on hold Dec BoJ meeting outcome and subsequent yen weakness, we saw official rhetoric rise around FX moves. 

• A clean break above 158.00 is likely to see 159.45 targeted, which was the July 12 high. Still, this is back in the intervention zone from mid 2024.
• At the margin, as the chart below highlights, there is less upside sponsorship from US-JP yield differentials for this most recent move higher in the pair. Still, yield differentials are moving sideways, particularly for the 10yr tenor, rather than falling.
• Data on JPY positioning, per CFTC, showed up to Dec 31, shorts for leveraged players continued to expand. Still at -42.3k contracts, we are comfortably above the 2024 extremes in terms of shorts. 

Fig 1: USD/JPY Versus US-JP Government Bond Yield Differentials 

Source: MNI - Market News/Bloomberg 

Early G10 FX trends are skewed in favour of the USD, with the yen continuing to underperform. The BBDXY index is up around 0.10%, to 1305.6 at this stage, so only recovering a small proportion of Monday's 0.60% drop. 

• USD/JPY is tracking through 158.00, last in the 158.10/15 region, around 0.30% weaker in yen terms for the session so far. This is fresh highs in the pair back to July of 2024.
• There doesn't appear to be a fresh macro catalyst for the move, other than reinforcing recent yen underperformance. In the cross asset space, US yields are steady, while US equity futures are up a touch. The regional equity tone is mostly positive, likely weighing on yen against crosses, although all other majors are also down against the USD.
• AUD/USD and NZD/USD are both off a little over 0.10%. AUD/USD last near 0.6240, while NZD is close to 0.5635, so within recent ranges. Australian building approvals have printed a short while ago, coming in below market expectations, but not impacting sentiment.  
• EUR/USD is back near 1.0380.
• The data/event risk calendar is light for the remainder of today's Asia Pac session, leaving markets on headline watch.