Yahoo Autos USD/JPY Fundamental Daily Forecast – BOJ Could Respond to Yield Rise with Verbal Intervention, Debt Purchases
The Dollar/Yen closed sharply higher on Friday, reaching its highest level since August 28. The Forex pair was lifted by an increase in U.S. bond yields, which triggered a huge drop in demand for higher risk assets, increasing the greenback’s appeal as a safe-haven currency.
Both the dollar and Yen are considered safe-haven currencies, but the Yen tends to decline when U.S. yields rise, the dollar tends to strengthen.
Government bonds, and particularly U.S. Treasuries, have become the focal point of markets globally since Federal Reserve Chair Jerome Powell’s testimony before two U.S. Congressional committees on Tuesday and Wednesday, failed to dampen investors’ opinion about the economy heating up and inflation rising.
Essentially, it was the widening spread between U.S. Government bond yields and Japanese Government bond yields that made the U.S. Dollar a more attractive investment.
On Friday, the USD/JPY settled at 106.549, up 0.306 or +0.29%.
With traders moving to aggressively price in earlier monetary tightening than the Federal Reserve and other central banks have signaled, and central bankers pushing against the notion of earlier-than-expected policy reversal, USD/JPY traders have to brace for continued volatility over the near-term until both sides get on the same page. This heightened volatility could further pressure global equity prices, which would make the U.S. Dollar the more favored currency.
