The grind higher in USD/JPY has once again been curbed by the 200DMA situated at 105.50, which in turn has seen the pair continue to range within its 100 and 200DMA. US fixed income has continued to soften with US 10s hitting 1.25%, which has been among the key drivers behind the recent Yen weakness. Keep in mind, that USD/JPY has largely been a rates play, given that JPY has failed to benefit from a softer USD.
Alongside this, with the VIX moving below 20, flows into equities have continued, whereby the Nikkei 225 reached the milestone of reaching 30k for the first time in decades and thus has weighed on the Japanese Yen further. For now, as equities and US yields firm, cross-JPY higher remains the theme, while USD/JPY needs a close above the Feb high at 105.76 to open the doors to 106.00-10.
Overnight, the FT reported that China is said to consider curbs on rare earth metals exports targeting the US defence sector with China wanting to know how bad US and European firms would be hit in the event of a ban. In turn, as we approach expiration of China’s tariff waiver on certain US imports on Feb 27th, US/China tensions resurfacing will be on my radar throughout the next few weeks, in which an escalation could pose a risk for the Aussie, particularly against the safe-haven Yen.
On the technical front, AUD/JPY has hit short-term resistance, which may curb the recent run of gains in the cross. That said, focus will be on the equity market for near-term direction, where a technical pullback leaves AUD/JPY vulnerable Reminder that, from now through to the end of Feb is a seasonally soft period for the equity market.