USD/JPY parring gains, now trading at 113.47 - up 8 pips on the day following highs of 113.64
Earlier today, I posted that US 10-year yields hit a high of 2.5007%. That coincided with USD/JPY making a move higher towards the day's high as well.
But now US 10-year yields are falling and is at 2.48% losing about 2bps. That's putting a drag on USD/JPY right now as well as the pair falls to 113.47.
It's been a relatively quiet day in the market, but there's no doubt that the movement in USD/JPY now is heavily dependent on the movement in US 10-year yields.
Then again, it has always been the case that the two do move together most of the time over the last year. Here's a chart I drew up to show that correlation:
So yeah, if you're looking to trade USD/JPY now, make sure you keep an eye out on the US 10-year yields chart as well. Here's how the US 10-year yields chart look like now:
The spike above this year's earlier high at 2.47% came after the tax bill passed voting at the Senate and at the House. If it is really due to the tax bill implication, then the spike in yields may only be temporary. The issue here is that the Fed also raised rates last week, which is meant to signal higher yields - but the reaction is a bit delayed (if this is even a reaction to it at all).
This is one the market has to figure out right now, is whether or not the movement in yields here are solely from the tax bill vote or is it a delayed reaction but still a reaction to the Fed's hike in interest rates.
The Fed has been trying to get longer-term yields higher and with 3 rate hikes this year, it is only the last two days that we're starting to see yields actually move in that direction (but then it does coincide with the tax bill news as I mentioned).
But if yields are underpinned and stay higher, then I guess the Fed wouldn't mind whether or not the chicken or the egg came first.
