USD/JPY: What is Behind the Sharp Rally
March 4, 2010
USD/JPY is on a tear this morning following the better than expected jobless claims report. I think traders are relieved that the deterioration in the labor market can officially be blamed on Mr. Frosty because jobless claims have reverted back to pre-snow storm levels. Although I am worried by the sharp rise in the number of people receiving extended and emergency unemployment benefits, that is clearly not what the market cares about right now.
USD/JPY is trading off U.S. rates (yields) and not stocks. The following chart shows the strong relationship between USD/JPY and the 10 Year U.S. Treasury yield. This relationship holds for shorter term yields as well like the 2 year bond yield
Posted in 2009 japanese yen, 2009 japanese yen forecast, usd/jpy
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March 7th, 2010 at 2:58 pm
So what is the driving force or the reason on the fundamental side of this correlation?
March 14th, 2010 at 10:50 pm
I agree USD/JPY might be correlated with 10Y rates for below reasons:
1. US Fiscal Debt needs to be financed by increasing interest rates to attract capital inflows into the US while the USD currency deteriorates.
2. If not enough capital inflows balance the accounts then investors will sell dollars and buy YEN.
Kind Regards,
Stanley
March 15th, 2010 at 9:26 pm
I think that: the laws of nature control of foreign exchange movements, the future rise in USD & JPY will enter the loop.