It was all about the yen overnight. Again.
USDJPY really started to accelerate to the downside just after 9:00 p.m. ET when, according to traders who spoke to Bloomberg, benchmark buying into the Tokyo fix was overwhelmed by macro account selling. Within an hour, it had broken below its 2017 low of 107.32.
“Break of 107.32 is very significant because if markets could have held above that, it may have helped reverse the downtrend; now that possibility is gone,” Daiwa’s Yukio Ishizuki said, adding that “market is one- sidedly betting on yen appreciation so players don’t need any reasoning, they are just riding the tide to sell dollars.” The two-day move is pretty dramatic.
As you can see, USDJPY would eventually bounce off a 15-month low. Apparently, some option barriers needed to be cleared before demand for the dollar could outweigh the downward pressure. Anyway, here’s the big picture that shows the break:
This of course weighed on the Nikkei and it came on a day when Japan GDP surprised to the downside. Remember how, there for a while, it looked like Japanese equities’ correlation with USDJPY was breaking down which some folks said could be a relief if the yen were to suddenly start surging? Yeah, well, it looks like the relationship is rekindled:
Incidentally, one wonders if the yen doesn’t win either way from this morning’s CPI print in the U.S. If it beats and there’s risk aversion, well then the safe-haven bid emerges, but if it misses, then there’s dollar weakness. Anyway, who knows.
Oh, and it was a blockbuster day for the Hang Seng, which rose for a second consecutive session as it looks to trim losses from last week which was the worst stretch for Hong Kong shares since the crisis.