CNH: CNH/JPY Back Sub All Key EMAs, Fresh YTD Lows
Yesterday's strong yen outperformance has pushed the CNH/JPY cross back sub 21.00. This puts the pair back below all of its key EMAs, see the chart below. The last time this occurred in Dec last year, we saw the cross test sub 20.50 before sentiment stabilized.
- Wednesday's wages print in Japan helped fuel renewed interest in the BoJ rate hike outlook. Market pricing is only pricing in slightly more than 1 further 25bps hike by end. Still, with China policy focus still likely to be heavily focus towards easing or staying accommodative, the CH-JP government bond yield differential is still point to further downside in this cross.
- Watch points for the market will be China's inflation data this Saturday. Beyond that we have new loans and aggregate finance data due by mid February. In Japan we get household spending data tomorrow, while Q4 GDP is due on Feb 17. Early 2025 wage negotiation trends will also be in focus.
- US tariffs is the other potential risk for this cross. So far Japan hasn't been mentioned as a potential target. Japan PM Ishiba is due to meet Trump over the coming days. No doubt the focus will be on avoiding tariff turmoil for Japan (from PM Ishiba's standpoint).
- At the current juncture, the relative tariff outlook is more in favor of JPY than CNH.
Fig 1: CNH/JPY Back Sub All Key EMAs
SOurce: MNI - Market News/Bloomberg
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JPY: Holding Above 158.00, Less Upside In US-JP Yield Differentials
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
FOREX: USD/JPY Testing Above 158.00, Multi Month Higher, USD Index Ticks Up
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.
MNI: AUSTRALIA NOV BUILDING APPROVALS -3.6% M/M, +3.2% Y/Y
- MNI: AUSTRALIA NOV BUILDING APPROVALS -3.6% M/M, +3.2% Y/Y
