JPY Trading Outlook (20-10-2014)

USD/JPY The N225’s vast under-performance vs the S&P 500 has continued at week’s end, despite the rebound in USD-JPY yield spreads, which leaves the USD/JPY recovery on somewhat shaky ground. The inability to offer USD/JPY below 105, the then daily Cloud top, has allowed prices to rebound with aberrantly low Tsy yields, but prices will need the N225 to eventually joined the yield spread rebound to keep them rising. The risk is that the daily Kijun and 50% of this month’s slide at 107.64 will cap this recovery and the Cloud will come in for a second test. Today’s TR/UM Confidence report gives the USD rebound some credibility, but back-tracking on potential rate hikes next year from some Fed members has to be factored in. On the Japanese side, a failed T-bill buying operation today suggested one of the reasons the BOJ has been adamant about not upping its QE, despite slow reflation progress and post-tax-hike economic weakening, is that the current buying is already bumping into deployment boundaries. Nikkei reported Abe’s new Ind Min, Obuchi, is under investigation for funding irregularities. Abe’s 3rd arrow political capital may be diminishing