JPY: USD/JPY Correlations With U.S. Yields Remain Strong
All of G10 FX is being influenced by US yields, but the correlation with USD/JPY remains the strongest
- The chart below plots the correlation between G10 FX pairs and the US 10yr nominal yield, for the past 30 days.
- USD/JPY's correlation is the highest, in absolute terms, at 93%. This is followed by EUR at 80%.
- The strength of the correlation between US yields and USD/JPY has arguably been reinforced by yesterday's dovish BoJ decision, with seemingly little prospect of a hawkish shift from the BoJ in the near term.
- The continued focus on YCC will keep interest rate differentials driven by the US leg.
- Japan's negative external trade position is another headwind, at the country's terms of trade has been hit by surging commodity prices. This is not a short term driver though, particularly compared to US yield moves.
- All of this comes as the market tests the authorities resolve and whether we see intervention to curb the yen's rapid descent.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
JPY: BoJ Supports JPY Crosses
The JPY is trading on the defensive on the back of the upping of the size of today’s scheduled BoJ Rinban operations covering 3- to 10-Year JGBs & the announcement of unscheduled BoJ Rinban operations covering 10- 25+ Year JGBs (also for today), as the Bank looks to exert more control over JGB yields given the market’s desire to test its conviction re: the permitted 10-Year JGB yield trading band. USD/JPY trades as high as Y123.20, last +25 pips or so on the day, just shy of Y123.15. The rate remains comfortably within the confines of this week’s ~312 pip range. The market has looked through weaker than expected Japanese retail sales data, as you would expect in normal times, let alone under current circumstances.
BOJ: The BoJ Will Conduct Unscheduled Rinban Ops In 10+-Year Paper
The BoJ has also announced that it will buy 10- to 25- and 25+ year JGBs today in unscheduled Rinban operations. The operations will be of the following sizes:
- 10- to 25-Year: Y150bn
- 25+Year: Y100bn
BOJ: Rinban Sizes Increased
The BoJ has increased the size of today's Rinban operations as follows:
- 3- to 5-Year: Y600bn (prev. Y450bn)
- 5- to 10-Year: Y725bn (prev. Y425bn)
