JPY Trading Outlook (10-03-2015)

USD/JPY NY brought the bid back for USD/JPY, using the o/n pullback toward the Asia and late NorAm lows from Friday at 120.58 as a fresh buying opportunity. USD/JPY gains in NorAm trading had the look of further Japanese pension fund reallocation out of JGBs and into foreign stocks and bonds, as well as Japanese stocks. USD-JPY 2-yr yields retreated into the London close as USD/JPY prices & N225 futures were advancing: not your typical pattern. The 60-day log correlation between USD-JPY 2-yr yields spreads & USD/JPY is a robust 0.61. Friday’s extreme Tsy yield rise after NFP skewed the hourly correlation badly, from 0.28 before NFP to 0.91 afterward. At 0.7 last, it remains high. The 121.415 intraday highs eclipsed Fri’s high and narrowed the gap on the 2014 peak at 121.86. If that peak is cleared, which looks likely given GPIF-led flows and the ongoing QQE2 from the BOJ vs a stable Fed balance sheet and relentless telegraphing of rate hikes this year by Fed speakers, the focus will be on the 2007 peak at 124.14. Had an O/S EUR/JPY rebound on day one of ECB QE and as the Jan nadir at 130.16 comes into view & Greek talks grind on.