[Calxy]

With mixed US employment data on Friday, the post-NFP move in USD/JPY was relatively small, consistent with its low correlation with US data surprise index. A move in interest rates and the market perception of risk represented by credit-spread are likely to play a major role in setting the direction of USD/JPY in coming weeks.

The bond market has underreacted to positive data surprises over the past month, and while some observers may attribute this muted response to concerns about a double dip, other markets, including fed funds, indicate these fears are overstated. Supply should also weigh on the longer end of the curve because the Treasury increased sizes on the 10y and 30y reopenings yet again and longer-term debt projections have been revised higher. Finally, the market will be adjusting to an end of the Fed's Treasury purchase programme and eventual end to purchases of agencies and MBS.

This should support a move higher in USD/JPY from its recent lows. Also note that the CFTC positioning data as of last Tuesday shows the net long JPY speculative position is at the largest since the beginning of August and it is likely to pose upward pressure on USD/JPY if these positions are squeezed out.