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Thomson Reuters
Jun 12 - 03:48 PM
USD/JPY - COMMENT-USD/JPY's Fed Edge Is Growing Increasingly Dull
First appeared on eFXplus on Jun 12 - 02:15 PM

The BOJ's yield curve control policy is resulting in waning quantitative easing -- less JGB buying needed to keep rates near zero -- and therefore less downward pressure on the yen.
This adds to USD/JPY's downward bias since the end of the late-2016 rally on widening of Treasury-JGB spreads.
Having long and short-term Japanese rates pinned near zero has meant Treasury yields now account for the great majority USD/JPY price changes.
And while Fed rate rises have kept USD/JPY well above the 2016 lows, real 10-yr Treasury-JGB yield spreads have been less supportive since February, though a short-term bounce in BOJ QE since then has helped.
ECB and BOJ-driven ultra low Bund and JGB yields are weighing on Treasury note yields, thus hastening the pace of Treasury curve flattening via Fed rate hikes and, thus, shortening the likely duration of that tightening.
And with U.S. inflation rising far faster than Japanese inflation, more rate rises and curve flattening are needed to keep real rate spreads rising and USD/JPY supported.

Chart: Click here

Chart: Click here

Thomson Reuters IFR Markets


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