Morning from Copenhagen.

We saw large moves in JPY crosses this morning with the JPY weakening in response to the ongoing liquidity withdrawal from the US system, as the premium required for JPY holders to obtain USD liquidity is rising fast at the moment. While the TONA/SOFR 3M Xccy basis dropped 10 bps this morning—which is pretty material—the moves coincided with the appointment of Ishiba as the president of the LDP in Japan, which has made the JPY rally a LOT, so we are in for some volatility in USDJPY and other Yen crosses potentially even when we enter next week.

Ishiba has frequently criticized Abenomics and expressed doubts about maintaining artificially low interest rates through the Bank of Japan’s monetary easing policies, including QQE. This stance could offer Ueda substantial political support for continuing the path toward policy normalization.

Chart 1: The TONA/SOFR 3M Xccy basis had a pretty material drop this morning