USD/JPY: yield spreads are compressing in JPY-supportive manner - Scotiabank

Analysts at Scotiabank noted that JPY has been outperforming all of the G10 currencies and pushing below Wednesday’s two month intraday high in an environment of geopolitically-driven risk aversion. 

Key Quotes:

"Short-term measures of implied JPY volatility are up and risk reversals are pricing in a greater premium for protection against JPY strength."

"Yield spreads are compressing in a JPY-supportive manner, compounding the impact of haven-driven strength."

"We also highlight JPY’s vulnerability to positioning adjustment with extended CFTC speculative shorts at risk of a squeeze. Seasonals are an added vulnerability."