USD/JPY is marching higher again – RBC CM

Adam Cole, Research Analyst at RBC Capital Markets, suggests that having looked as if it had run out of momentum around 111, USD/JPY is marching higher again, with higher US yields driving and the move reflecting USD/JPY’s high leverage to US rates within G10.

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“With Fed hike expectations already quite richly priced, it is tempting to conclude that the upside for rates and for JPY/USD is limited, although it is hard to go against momentum this strong. The JPY side of the rate spread is likely to get little support from tonight’s run of Japanese data. On the BoJ’s core measure (ex-fresh food), CPI inflation is expected to remain little changed in October (-0.4% y/y from -0.5%). The MoF’s weekly capital flows data have recently shown steady, but unspectacular, demand for foreign equities and bonds, although tonight’s data for the week to last Friday will be the first that are fully post-US election. It will be interesting to see whether overseas bond demand has risen with global yields and in light of the BoJ cap on domestic yields.”