Yen Selling Takes Off, More Downside for Today

Yen’s selling took off overnight, following rebound in treasury yields. Weakness is somewhat solidified in Asian session, together with the strong rebound in Nikkei. With some technical levels broken, Yen’s decline could extend before weekly close, and it’d likely end as the worst performing one. As for the week, Canadian Dollar is currently the second worst performing, while Kiwi and Sterling are the best.

Technically, USD/JPY’s break of 109.77 resistance suggests resumption of rebound from 107.47, for retesting 110.95 high. The development realign the near term bullishness with other Yen crosses. In particular, we’d note that CHF/JPY also jumps as recent rally extends. Outlook will stay bullish as long as 121.34 support holds. Next target is long term projection, 100% projection of 101.66 to 118.59 from 106.71 at 123.64.

In Asia, Nikkei closed up 2.13%. Hong Kong HSI is up 0.36%. China Shanghai SSE dropped -0.22%. Singapore Strait Times rose 0.83%. Japan 10-year JGB yield is up 0.0052 to 0.081. Overnight, DOW rose 0.41%. S&P 500 rose 0.12%. NASDAQ dropped -0.01%. 10-year yield rose 0.036 to 1.610.

Fed Kaplan: Wise to talk about moderating QE sooner rather than later

Dallas Fed President Robert Kaplan told CNBC, “sooner rather than later I think it would be wise to start talking about moderating some of these purchases that we put in place during the crisis.”

“I think maybe the efficacy of these versus the side effects, I think that balance is changing as we’re emerging from the crisis and making progress,” he said.

“Coming out of this pandemic, I think we’ve got some paradigm shifts,” he said. “There’s no textbook for this. You don’t want to be so preemptive that you choke off the recovery. On the other hand, you don’t want to be so late that you’re behind the curve.”

BoJ’s asset holdings reached 1.3 times of nominal GDP in fiscal 2020

According to BoJ’s data, total assets held surged to JPY 715T in fiscal 2020, on the central bank’s massive purchases. It was 1.3 times the nominal GDP of Japan, at JPY 536T in the same fiscal year.

Of the assets, JGBs totaled JPY 532T, up 9.5% from a year earlier. Loans to financial institutions jumped 2.3 times to JPY 126T. ETS rose 20.7% to JPY 36T.

Separately, it’s reported that BoJ would extend the pandemic relief program by another six months, at its June 17-18 meeting.

Released from Japan, unemployment rate edged higher to 2.8% in April, up from 2.5%, above expectation of 2.7%. Tokyo CPI core dropped -2.0% yoy in May, unchanged from April’s reading.

Elsewhere

Germany will release import price index, in European session. France will release CPI, consumer spending and GDP. Swiss will release KOF economic barometer. Eurozone will release economic sentiment indicator.

Later in the day, US will release personal income and spending, with PCE inflation, goods trade balance, and Chicago PMI.

USD/JPY Daily Outlook

Daily Pivots: (S1) 109.28; (P) 109.60; (R1) 110.16; More…

USD/JPY’s break of 109.77 resistance suggests resumption of rise from 107.47. Intraday bias is back on the upside for retesting 110.95 high next. For now, break of 108.55 support is needed to confirm completion of the rebound. Otherwise, further rise will remain mildly in favor in case of retreat.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. We’d monitor the structure of the fall from 110.95, to assess whether it’s just correction to rise from 102.58 to 110.95, or a leg of a range pattern between 101.18 and 111.71, or starting another leg of the long term down trend.

Economic Indicators Update