The USD v JPY has been retreating again with a move to 144.30 and it is possible that the pair could move lower toward 142. The September low at 139.63 would be the bigger test.
Japan’s bond market sentiment was hurt by the worst auction demand since 2012. The sale comes after a recent surge in longer-dated Japanese bond yields and increased volatility, partly due to the recent US policy measures. Investors were worried that the central bank was stepping back from the market.
Japan has been the biggest buyer of US treasury bonds with official data showing holdings of $1.13 trillion in March. Any problems in the Japanese economy could ultimately backfire on the United States.
Prime Minister Shigeru Ishiba was gloomy about the fiscal situation, saying:
“Our country’s fiscal situation is undoubtedly extremely poor, worse than Greece’s”.
Japan reported last week that its GDP growth shrank in the past quarter, with investors fearing a recession. On Monday, the cost of borrowing rose after yields on the 40-year bond hit highs not seen in 20 years.
Ishiba was elected prime minister after pitching himself as a hawk aiming to curb the excesses of “Abenomics”.
After the US debt downgrade, the USD v JPY could be a currency to watch over the coming months as capital flows could change. For the moment, the yen may drop to test the lows of last September.
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