After hitting a low around 101.77 yesterday USD/JPY rebounded. USD/JPY short term range is seen at 101.62-103.58. Bias for more short term USD/JPY upside. The bounce in US 10 year Treasury yields overnight will give the USD some support versus JPY.
A combination of a sharp decline in US Treasury yields (narrowing the yield differential with Japan) and elevated risk aversion (my risk barometer has breached its upper band) had pushed the JPY higher.
The close to 30 bps drop in US 10 year yields since the start of the year looks excessive however, and assuming the Fed continues to taper at tomorrow’s FOMC meeting I see little reason for US bond yields to drop much further, suggesting more limited scope for JPY upside versus USD from current levels.
The only caveat is risk aversion. Given that emerging market tensions are unlikely to ease quickly there will be scope for sharp bouts of safe haven JPY buying as risk aversion intensifies.