Yen Crosses Lifted by US Yields, Pared Gains After BOJ

Yen crosses were taken higher overnight by surging U.S. treasury yields, but pared gains after the BoJ policy rate was left unchanged at 0-0.1%. The target of annual increase in monetary base was also kept unchanged, at JPY 60T to JPY 70T. The announcement was a disappointment to the analysts that thought that the BoJ would do something to calm the volatile JGB markets. The U.S. 10 year yield jumped overnight to close at new 2013 high at 2.215%, and took most yen crosses higher. Technically, the USD/JPY was held below the 99.46 minor resistance while the EUR/JPY and GBP/JPY struggled to stay above 130.72 and 153.58 minor resistance respectively. Near term risk remains on the downside for yen crosses.

St Louis Fed Bullard said that "surprisingly low inflation readings" may give room for the FOMC to maintain the "aggressive program over a long time frame". He also noted that labor market conditions have "improved since last summer", which suggested that Fed could "slow the pace of purchase". Regarding the plan, Bullard said in an interview that he'd prefer to reduce purchases of MBS first and sticks to treasuries. Fed might wind down the purchase by $10b to $20b at a time, and that would be "analogue of 25 basis point move" in the fed funds’ rate.

S&P revised the long-term outlook on AA+ US credit rating to stable, up from negative. It noted that the US rating downgrade is less than one in three. The rating agency also noted that the AA+ rating already factored in a "lesser ability of U.S. elected officials to react swiftly and effectively to public finance pressures over the longer term in comparison with officials of some more highly rated sovereigns and we expect repeated divisive debates over raising the debt ceiling."

On the data front, Japan M2+ CD rose 3.4% yoy in May, the BSL large manufacturing improved sharply to 5 in Q2. Australian home loans rose 0.8% in April, missing the expectation of 2%. NAB business confidence improved to -1 in May. UK RICS house price balance improved to 5 in May. U.K. data is a main focus for today with industrial and manufacturing production featured, as well as NIESR GDP estimate. The U.S. will release wholesale inventories.