USDJPY has rebounded, but still needs to overcome the 110.20/40 resistance zone to stabilise medium-term prospects from a technical perspective. Fundamentally, chances of a USDJPY rebound have improved. James Comey’s statement released yesterday was non-controversial and today’s hearing is unlikely to go beyond what has been stated yesterday. This morning’s Q1 GDP release showing nominal GDP shrinking by 0.3%Q and the deflator declining by 0.8%Y suggests that Japan may need continued monetary accommodation support. BoJ’s Kuroda seems to be in a similar position as ECB’s Draghi in being pressed by hawkish politicians to define its exit strategy from monetary stimulus. In light of the disappointing Q1 GDP report, the BoJ is thinking how to re-calibrate its communications to acknowledge that it is thinking about how to handle a future exit from monetary stimulus, without giving the impression that this is on the agenda anytime soon.

MoF flow data. The release of April’s MoF security flow data revealing a JPY4.2trn repatriation from foreign bond markets including the US and Europe is making headlines, but is water under the bridge. It is ‘yesterday’s story’ related to French election uncertainties, fading the Trump trade, Japanese lifers’ fiscal year end window dressing, and the Japanese banking sector dealing with an expected adjustment in the regulatory regime. The MoF’s weekly security flow data covering the month of May showed sizeable foreign bond buying interest. It was only last week when Japan-based accounts were selling foreign bonds again. The more interesting part of the MoFreport reveals that foreign flows into Japan’s money market funds has sharply reversed, suggesting that the ‘monetization’ of the USDJPY basis may have slowed, nd that Japan’s USD hedging costs may not fall much further from here.