JPY made up ground in the European morning session amid profit taking and bond related hedging. USD/JPY drifted lower after running into option related selling ahead of 120.00 and increased interest from lifers and custodial names reportedly booking bond related profits. A large EUR/JPY order exacerbated price action, with reports of one lifer selling EUR 1 billion.
The interest was reportedly a switch out of Eurobonds and into Japanese bonds, which incidentally came amid very strong demand at today's 30-yr JGB auction. USD/JPY traded down to 119.12 and EUR/JPY printed 161.32. Both pairs were supported amid good Asian name demand. The former saw importer activity as well as investor demand and EUR/JPY saw good investment trust interest.
A number of accounts are believed to be positioning themselves for Friday's Y100 billion Toushin and next week's Y600 billion in new launches. Today's European afternoon focus will shift to the US CPI release. The market is sensitive to any signs of stagflation and a strong reading coupled with fears of below trend growth in Q1 would reinforce the broadly soft dollar trend.
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