USD/JPY: Break of 113.00/20 could open doors to 112.00 - BBH

Analysts from Brown Brother Harriman, point out that the Japanese currency has been the worst performer in the currency market since April 11. They see USD/JPY supported by the 113.00/20 area. 

Key Quotes: 

“Since April 11, the yen is the world's weakest currency.  It lost 3.6% against the greenback. The Canadian dollar is a close second with a 3.3% decline.  In the emerging market space, the Chilean peso has been the worst performer, nursing a 2.7% loss.”

“The reversal of the yen lines up well, with the sell-off in US Treasuries and the widening of the US interest rate premium over Japan.  The US 10-year yield bottomed near 2.16% on April 18. The dollar bottomed against the yen the previous day just above JPY108.  The US premium over Japan on 10-year paper bottomed on April 18 around 2.16%.”

“The US 10-year yield has risen to 2.42% today before pulling back a bit, despite the larger than expected rise in PPI and the continued recovery in oil prices after staging an upside reversal at the end of last week. The US premium over Japan rose to nearly a two-month high yesterday above 2.37%.”

“The US reports April retail sales and consumer prices tomorrow.  Both are expected to have improved from soft March readings. If our analysis is correct, and the key to dollar-yen is the US 10-year yield than tomorrow's data could be important.  However, give the recent price action, it would seem to require an upside surprise of the data to extend the rise in US yields and the dollar against the yen.  Initial support for the dollar is seen in the JPY113.00-JPY113.20 area, and a break could spur a move back to JPY112.00.”