USD, JPY flows: Softer JPY overnight hard to justify

JPY weakness was the main theme overnight, which looks a little strange given the generally risk negative tone, especially in Asian equities, and the stronger than expected Japanese CPI data for February. While this didn’t have any significant impact on JPY yields, a higher inflation trajectory does increase the chances of a May rate hike form the BoJ, while equity weakness is typically JPY positive, when, as now, not triggered by higher yields. With USD/JPY already at levels that look high relative to current yield spreads, levels near 150 look likely to attract sellers.

The calendar is relatively quiet today, so we wouldn’t expect any major FX moves. The generally firm USD tone may persist, with EUR/USD still looking a little extended above 1.08, and weaker risk sentiment tending to support the USD against the riskier currencies. But it’s hard to see this justifying USD/JPY back above 150.