JPY outperforms on Fed/BoJ outlook – Scotiabank

The Japanese Yen (JPY) is strong and outperforming all of the G10 currencies with a 0.8% gain against the US Dollar (USD), Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

JPY outperforms on narrowing spreads

"The outlook for relative central bank policy remains dominant, as market participants consider the possibility of an accelerated timeline for leadership changes at the Fed. For Japan, this week’s commentary from the BoJ has leaned hawkish with a heavy qualification on the outcome of trade talks with the US."

"The BoJ has also maintained its focus on bond market developments, given recent turbulence, and should find some reassurance in the latest two year bond auction that saw its highest bid-to-cover ratio (3.9) since January."

"Narrowing US/Japan yield spreads offer the JPY fundamental support, and 2Y spreads are drifting back toward their recent lows threatening a break to levels last seen in mid-2022. For USDJPY, we await a break of the recent range lows around 142.50 and the psychologically important 140 level that offered intraday support in late April."