Japanese Yen, USD/JPY, US Greenback, BoJ, Fed, Treasury Yields, MOVE, Volatility – Speaking Factors

• The Japanese Yen seems listless whereas the US greenback grapples for grip
• The BoJ appears to be like more likely to hold financial unchanged for now whereas the Fed tightens
• Treasury yields and bond market volatility may be saying one thing about USD/JPY

The Japanese Yen has been regular to date this week in a interval the place the US Greenback has broadly weakened in opposition to most G-10 friends.

The shortage of power within the Yen may be reflecting the notion that the incoming Governor of the Financial institution of Japan (BoJ) Kazuo Ueda will keep the ultra-loose financial coverage stance of his predecessor.

The BoJ has a coverage price of -0.10% and is sustaining yield curve management (YCC) by concentrating on a band of +/- 0.50% round zero for Japanese Authorities Bonds (JGBs) out to 10 years.

The ten-year JGB is persistently bumping up in opposition to the higher certain of 0.50% because the market regularly exams the resolve of the financial institution within the face of rising yields globally.

There’s hypothesis that YCC may be adjusted within the second or third quarter this yr, having been loosened in December.

Whereas the BoJ maintains its dovish stance, the Federal Reserve continues to roll out the hawkish message. In a single day it was Atlanta Fed President Raphael Bostic and Minneapolis Fed President Neel Kashkari waving the speed rise flag.

The latter stated that he’s ‘open-minded’ a few 25 or 50 foundation level raise within the Fed funds goal price on the subsequent Federal Open Market Committee (FOMC) assembly in 3 weeks. Each reiterated the necessity to get inflation underneath management.

US Treasury yields are marching north once more with the 10-year mote eclipsing 4% once more in a single day whereas the 2-year bond made a recent 15-year peak above 4.90%. If the buck picks up steam once more, a bullish USD/JPY trajectory might unfold additional.

An attention-grabbing evolution on this run-up in US yields has been the comparatively benign response in volatility. The MOVE index measures Treasury bond market volatility in an analogous method that the VIX index measures volatility on the S&P 500.

The final time US yields had been up at these ranges, the MOVE index was additionally at a better degree than the place it’s at present.

This would possibly indicate that the market is extra comfy with this improve in rates of interest this time round than beforehand, doubtlessly permitting charges to remain elevated or probably go greater nonetheless.

If the correlation between USD/JPY and Treasury yields holds, USD/JPY may very well be underpinned for now.

USD/JPY, MOVE INDEX, US 2- and 10-YEAR TREASURY YIELDS

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel by way of @DanMcCathyFX on Twitter