USD/JPY will continue moving higher as JGB yields are capped - Westpac

Robert Rennie, Research Analyst at Westpac, suggests that it was bound to happen sometime soon - it did today as the BoJ fired its new ‘fixed rate option’ weapon for the first time which now gives the market a ‘line in the sand’ for JGB yields.

Key Quotes

“However, from an FX/ liquidity point of view, the fact that the operation did not actually succeed in buying any JGBs means we are still technically in a ‘soft taper’ world. Thus I do not see this as a primary reason to sell the ¥. However, it does emphasise that if global bonds continue selling off, then USD/JPY will continue moving higher as JGB yields are capped.”

“Our sense is that having hit 2.25%, US 10yr yields will likely pause, thus we still see a pull back towards the 200dma for USD/JPY as likely. Below that level it looks like a buy.”