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June 25 (Reuters) - FX traders should be aware that the relationship between USD/JPY and EUR/JPY has fully broken down in the near term.

USD/JPY has been grinding higher in recent weeks, continuing its broader uptrend, while EUR/JPY has stalled and suffered a setback, confirming that euro-side weakness has been acting as a drag on the cross and pulling it away from the yen-driven factors that would ordinarily keep the two pairs in lockstep.

The 30-day log correlation between USD/JPY and EUR/JPY has turned negative, currently reading -0.04, a dramatic deterioration that signals the two pairs are now moving in opposite directions on a short-term basis.

This is a significant development. A negative correlation means that shared yen-driven factors can no longer explain EUR/JPY price action.

The 60-day correlation, by contrast, is holding at 0.68, meaning the longer-term structural relationship between the two pairs remains broadly intact. The gap between the 30-day and 60-day readings of more than 0.72 shows that the current dislocation is quite extreme.

EUR/JPY is currently carrying significant euro-side risk that may not be immediately obvious to those positioned purely on a yen view.
Correlation Chart


(Martin Miller is a Reuters market analyst. The views expressed are his own.)