The three pillars of the USD/JPY rally last year were 1) rising Treasury yields 2) a higher Nikkei 3) expanding Japanese QE.

Yields are at the lowest since November, the Nikkei is down almost 12% this year and the BOJ hasn’t hinted at more QE.

Technically, the bond market is breaking while the Nikkei and USD/JPY skid along the Feb/April lows.

USDJPY vs 10-year yields (green) and Nikkei (red)

USDJPY vs 10-year yields (green) and Nikkei (red)

I find it very hard to come to terms with the idea that the US economy is in so much pain that yields are falling but an under-appreciated report shows the Fed plans to continue re-investing expiring bonds and that adds up to much more QE. After that, it’s all about the data with CPI tomorrow and May consumer sentiment Friday.