JPY flows: JPY strengthening across the board
JPY up as yileds fall and equities soften
JPY strength has been the main feature of the European morning, with USD/JPY dropping nearly a big figure from opening levels and EUR/JPY falling even more as EUR/USD falls back below 1.09. Lower yields across the board have been helpful, especially in combination with softer equities, given the implied rise in equity risk premia. While yield spreads have been pointing lower for some time, it’s only in the past week or so that equity risk premia have started to rise, and this has been the better signal for moves in JPY crosses in recent years. F rom here, there is still plenty of downside scope for both USD/JPY and EUR/JPY, based both on yield spreads and risk premia, with a move sub-150 for USD/JPY and sub-165 for EUR/JPY correlating with current spreads and risk premia.
