JPY consolidating in tight range – Scotiabank

The Japanese Yen (JPY) is flat against the US Dollar (USD) and consolidating in a tight range just above its recent lows, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Higher yields offer limited support

"Japanese Government Bonds (JGBs) are trading defensively and long-end yields are hitting fresh multi-decade highs ahead of this weekend’s upper house election. Market participants appear to be concerned about the fiscal implications of the vote, given talk of consumption tax cuts to appease an inflation-weary electorate."

"Higher JGB yields would typically provide the JPY support via narrowed spreads, however sentiment appears to be dominating and the options market reveals a continued erosion in the premium for protection against JPY strength."

"For USD/JPY, we continue to highlight the importance of the two month range bound between 142.50 support and 148.00 resistance. A break would shift the focus to the 200 day MA (149.71)."