BOJ reduces the amount of long-term bonds it is buying - BBH

Analysts at BBH explain that sparked by fears that the BOJ took a step toward the monetary exit by reducing the amount of long-term bonds it is buying, there is an apparent scramble to cover previously sold yen positions.  

Key Quotes

“The dollar finished last week near JPY113.00.  It fell to about JPY112.35 yesterday, near the 50% retracement of the greenback's bounce from the late-November lows near JPY110.85.”

“The yen was bought in Asia earlier today and again in Europe.  It has been pushed through JPY112, which has held over the past month, which also corresponds with a 61.8% retracement objective.  The dollar broke through the 200-day moving average (~JPY111.70) in Europe.  The next obvious technical area is the low from last November (~JPY110.85).  We think that the scaling back of long-dated JGB purchases is not the signal of a new policy initiative (tapering) but the consequence of the shift from QQE to yield curve management.  However, we recognize that it has provided the spark for position adjustments.”

“The bout of position adjustment was also sparked by the correction in the euro.  The euro-yen cross seemed to be a common expression of conventional wisdom that the ECB was ahead of the BOJ and would remain so.  The cross saw bearish price action before last weekend, warning of a near-term top.  The euro fell from JPY136 at the end of last week to JPY133.35 today.  The break of JPY133.80 today risks triggering a move toward JPY132, the mid-December low.”

“Counter-intuitively, the yen's surge has coincided with a backing up of US 10-year yields.  The yield moved above 2.50% yesterday and is consolidating above there today.”