JPY Trading Outlook (07-07-2014)

USD/JPY A stellar US jobs report gave USD/JPY a fresh leg up amid rising Tsy yields and despite some overnight Nikkei weakness. Stops were run above 102 after the down TL from last month’s high was cleared along with the daily Kijun. The focus turns to the Cloud top at 102.47. Rallies dating back to March have featured fleeting moves beyond the Cloud top. With 1-mo vols at 4.4, it’s clear the mkts see the Fed & BOJ basically in a holding pattern for a while. And while USD-JPY 2-yr yld spreads are at multi-year highs, 10-yr spreads remains below even this April’s high. The assumption is even belated Fed tightening will be enough to keep inflation and L-T rates under control. Importantly, today’s Tsy yield rise was not large enough or enduring enough to keep JPY & USD-funded carry trades under pressure. GBP/JPY made new post-crisis rebound highs, EUR/JPY was little changed and AUD/JPY managed to claw back some of its heavy two-day losses from bad local data and Stevens’s more dovish comments. Some of this may have been pre-weekend book-squaring, but there’s little sense of fear the Fed, ECB or BOJ will kill carry trades any time soon.