As the USDJPY and the USDCHF move to new session highs, the catalyst is a move higher in yields. The 10 year yield is currently at 3.034%, up 8 basis points on the day. The high yield reached 3.04% so far. The low was at 2.937%.
Since the May 6th low the yield is up near 33 basis points. The yield is also on track for its 6th straight move to the upside and trades at the highest level since May 11. The high cycle yield reached 3.203% back on May 9th. That took the yield to the highest level since November, 2018. The high yield in 2018 reached 3.252%.
At 3.034%, the yield is less than 22 basis points from the 2018 high yield.
Looking at the USDJPY below, it recently bottomed on May 24th at 126.21. It’s last 7 trading days has seen the price up 6 of 7 trading days. Today’s high extended above the previous cycle high from May 9 at 131.342. That was a 20 year high going back to April 2002.
The high today has reached 131.889 so far (trading at the high). Since the May 24 low, the pair is up 567 pips in 9 trading days.
Another catalyst for the upside momentum, is the yield spread between US and JPY 10 year notes. Looking at the US 10 year yield minus the Japan 10 year chart below, the spread is up 9.5 basis points today, and up 31 basis points since May 27 (nearly the move up in the US 10 year yield) t0 280 basis points . BOJs Kuroda has reiterated his desire to keep the pedal to the metal as far as stimulus and that has put the disparity of central bank policy back into focus – widening the yield spread in the process.
As long as the US Fed remains focused on fighting inflation and tightening, and the BOJ is focused on growth and stimulus, yield spreads are at risk to continue to widen, and that too should support the USDJPY in the process.