James Hyerczyk
Add to Bookmarks

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.

Know where the Market is headed? Take advantage now with 

Trading Derivatives carries a high level of risk to your capital and you should only trade with money you can afford to lose. Trading Derivatives may not be suitable for all investors, so please ensure that you fully understand the risks involved, and seek independent advice if necessary. A Product Disclosure Statement (PDS) can be obtained either from this website or on request from our offices and should be considered before entering into a transaction with us. Raw Spread accounts offer spreads from 0.0 pips with a commission charge of USD $3.50 per 100k traded. Standard account offer spreads from 1 pips with no additional commission charges. Spreads on CFD indices start at 0.4 points. The information on this site is not directed at residents in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

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.

Short-Term Outlook

With the Fed unlikely to be spooked into changing policy without notice, all eyes will be on how the Bank of Japan reacts to rising domestic yields. The Reserve Bank of Australia (RBA) was forced to intervene on Friday to act as a breakwater against rising yields. Traders want to know how the BOJ feels about rising domestic yields.

The BOJ didn’t act on Friday, but Finance Minister Taro Aso fired a warning shot as the benchmark yield surged to within a couple of basis points of the perceived limit of the central bank. “It’s important that yields don’t suddenly jump up and down,” said Mr. Aso in Tokyo. “We need to make sure not to lose the market’s trust with fiscal management.”

Governor Haruhiko Kuroda later said the BOJ won’t change its yield target, and wants to keep the nation’s yield curve low.

For a look at all of today’s economic events, check out our economic calendar.

Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Trade With A Regulated Broker