###POV. Traditionally, the....>

GLOBAL MARKET/OPINION: ###POV. Traditionally, the dollar-yen exchange rate and

the bond markets have been closely linked as both respond similarly to

risk-on/off trades e.g. the yen appreciates when a geo-political or banking risk

arises and bond yields drop at the same time.

- Based upon daily changes, the 12 month correlation between the yen and the US

10Y is the highest it has been in a decade (74.6%). Why is it getting stronger?

- This is not because the risk trade is more dominant but hidden behind the

dollar-yen movement is a second element to the correlation, interest rate

differentials caused by economic growth.

- When interest rates were super low everywhere and near unchanging, the ability

for rate differentials to influence the exchange rate was limited but Fed hikes

and prospects for more have unleashed this beast and amplified an already high

correlation.

- See the chart of 12m correlation chart here: https://tinyurl.com/yatgspt6