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USD/JPY Correlations With U.S. Yields Remain Strong

JPY
BulletMarketsBank of Japan (BOJ) Market NewsForeign Exchange

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.

Fig. 1: G10 FX Correlation With U.S. 10yr Yield - Last 30 Days

    Source: MNI - Market News/Bloomberg


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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.

Fig. 1: G10 FX Correlation With U.S. 10yr Yield - Last 30 Days

    Source: MNI - Market News/Bloomberg