USD continued to improve against the JPY as US yields rose across the curve. With the macro backdrop of us-china trade optomism and improved outlook for the US economy yield o 10 year treasuries hit 3.128%, marking a 7 year high. However, meaningful adjustment in the Feds policy path has yet to be made. Fed Fund Futures continue to price only two 25bp hike in 2018. On widening spreads (specifically in shortern duration) USDJPY rose to a sesson high of 110.992. Interestingly CHF has yet to be further influenced as political uncertianty in Italy has kept the european safe haven chf well bid. Japan CPI fell to a disappointing 0.6% y/y in April while core dipped to 0.4 from 0.5%. These reads overall distance from the BoJs 2% inflation target and general trajectory indicates no softening in BoJ reflation stance. With anchored pro inflation policy vs. US economic exceleration and pair sensitivity to spread widening suggests further upside for USDJPY.
By Peter Rosenstreich