USD/JPY Fundamental Daily Forecast – Falling Treasury Yields Driving Investors into Safe-Haven Japanese YenInvestors rotated into the safety of Treasuries further on Thursday, pushing the yield on the 10-year Treasury to 1.25% to the lowest since late February.
The Dollar/Yen is trading sharply lower late in the session on Thursday as investors shunned risky assets after minutes of the U.S. Federal Reserve’s June policy meeting confirmed it was moving towards tapering its asset purchases as soon as this year.
The risk off theme was fueled by weakness in mega cap U.S. technology stocks and renewed demand for the safe-haven appeal of government debt and safe-haven currencies. A broader-based sell-off in Asian stocks also contributed to the move.
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At 20:02 GMT, the USD/JPY is trading 109.782, down 0.842 or -0.76%.
Essentially, a plunge in demand for risky assets drove investors into Treasury bonds. This pushed down yields, while tightening the spread between U.S. Government bonds and Japanese Government bonds, making the U.S. Dollar a less-attractive asset.
Dow Drops More than 250 Points amid Global Economic Recovery Concerns
Traders moved into the safe-haven Japanese Yen after the major U.S. stock indexes fell on Thursday on concern about the global economic comeback from COVID-19. The losses came as Japan declared a state of emergency in Tokyo for the upcoming Olympics and as countries deal with a rebound in cases because of COVID variants.
Meanwhile, the Labor Department’s latest jobless claims data came in unexpectedly higher at 373,000, signaling a possible slowdown in the labor picture amid the COVID recovery. Economists expected to see 350,000 first-time applicants for unemployment benefits for the week ended July 3, according to Dow Jones.
Spectators to Face Olympic Ban as Tokyo Declares Coronavirus Emergency: Report
Olympic organizers are set to ban all spectators from the Games, the Asahi daily said on Tuesday, as Japan declared a coronavirus state of emergency for Tokyo that will run through its hosting of the event to curb a new wave of infections.
Furuse recently projected that new daily cases in Tokyo could increase to 1,000 in July and 2,000 in August, raising the risk of hospitals in the capital region running out of beds.
“Taking into consideration the effect of coronavirus variants and not to let the infections spread again to the rest of the nation, we need to strengthen our countermeasures,” Prime Minister Yoshihide Suga said.
“Given the situation, we will issue a state of emergency for Tokyo.”
Investors rotated into the safety of Treasuries further on Thursday, pushing the yield on the 10-year Treasury to 1.25% to the lowest since late February.
Despite the recovering economy and fast inflation, the 10-year Treasury yield continues to decline. It was at 1.58% to start July and hit a 2021 high of 1.78% in March. Traders remain confused about the exact reasons for the rollover in yields, with many citing concern that the best of the economic recovery may be behind us.
As long as Treasury yields continue to weaken, the Dollar/Yen is expected to feel downside pressure.