September 6, 2022 01:36 AM ET
By: AnalysisWatch
During the eight-day uptrend, USD/JPY rallied early Tuesday morning in Europe, reaching the highest levels since 1998, allowing the yen pair to reach 140.97 while benefiting from rising U.S. Treasury yields and the market's risk-on mood.
Nonetheless, 10-year U.S. Treasury yields rose 2.5 basis points (bps) to 3.21 percent at press time, allowing U.S. benchmark bond prices to reverse Friday's losses. Intraday gains of 0.50% in the S& P 500 Futures, as well as a pullback in the U.S. Dollar Index (DXY) from the previous day's 20-year high, may also reflect the risk-on mood.
In addition, weaker Japanese data seems to be propelling the USD/JPY movement. Earlier in the day, Japanese overall household spending fell to 3.4% y/y for July, compared to 4.2% expected and 3.5% previously. In addition, cash labor income fell to 1.8% y/y, versus the market consensus of 2.5% and 2.2% previously.
It is worth noting that verbal interventions by Japanese policymakers seem to be failing to defend the yen bulls. Recently, Japanese Finance Minister Shunichi Suzuki said on Tuesday that "I feel like the recent currency moves are becoming more meaningful."
It's worth noting that multiple option expirations around 140.00, which recently brought in about $626 million according to Reuters, are keeping USD/JPY buyers optimistic.
In addition, CME's FedWatch tool, which indicates that the probability of a 0.75% Fed rate hike in September is 60%, down from more than 75% the week before, is helping the pair. The easing of hawkish Fed bets could be related to the mixed U.S. jobs report in August.
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