Societe Generale analysts note USD/JPY grinding towards 160 as widening 2-year UST/JGB spreads dominate over Oil moves for the Japanese Yen (JPY). The pair trades within 1% of the late-April intervention level, with markets assuming a 25 bp Bank of Japan (BoJ) hike in June. They highlight key intraday support, resistance and sizeable option expiries.

Spreads drive Yen weakness

"Spot advances to new May high tracking oil, US yields. Support 158.70, resistance 160.70."

"In G10 FX, it is puzzling to observe USD/JPY grinding towards 160, tracking the re-widening in 2y UST/JGB spread to 270bp."

"The level in spreads is not insignificant technically and corresponds with the previous high of Nov-25. It also demonstrates that bond spreads hold greater sway at present over oil prices in the case of the Yen."

"Hawkish declarations by Governor Ueda earlier this week appear to have formalised a 25bp increase by the BoJ to 1.0% on 16th June, one day before the FOMC."

"The currency trades within 1% of the intervention level of 160.72 in late April. Not quite a waste of $67bn but a high price nonetheless to achieve barely a ripple. The cost of JPY calls/ USD puts has cheapened over the past three weeks from -1.67 to -1.07, in line with bond spreads."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)