Earlier today in Asia, we saw the first test on 115.00 in USD/JPY, which was firmly held off by exporter selling. That said, many have been calling for a deeper correction before we test into the next major area, with longer term calls for 120.00 looking increasingly amenable given the pace of gains seen in response to the rise US mid curve yields. The 10yr is the focus for JPY traders traditionally, though the 5yr has mirrored gains, but with such an abrupt turnaround seen yesterday (near 10bps), some will say it is warranted, despite the oversold status in the JPY across the board.
The next target area on the high side is now 115.50-116.50, while on the downside, only a break back under 113.00 will be considered a deeper correction. US payrolls tomorrow is expected to be strong – as has much of the US data series of late (with the exception of personal spending yesterday – personal income beat f/cs) – so we expect the dip buying to resume, especially with the touted month end USD selling passing without any significance whatsoever. One potential risk to all the JPY pairs is any moderation in the equity markets, and we have to consider this with the Italian referendum this weekend potentially causing some profit taking over today and tomorrow.