- USD / JPY fell back to weekly lows in the 112.50 region on Friday, although it has since rebounded as trading volumes decline.
- The pair fell back from a high of 113.50 as risk appetite deteriorated and caused long-term US yields to tumble.
Risk is the driving force as the US session draws to a close. US stocks are substantially lower, as are other risk assets like crude oil and AUD, NZD, NOK, and SEK on the currency markets. Meanwhile, US safe-haven bonds have received an offer and this has caused yields to decline significantly and further flattened the US curve. This has put downward pressure on interest rate spreads. of the United States / Japan and, as a result, it is weighing heavily on the USD/JPY.
Going back to the bonds; the 10-year yield is down 10 basis points on the day below 1.35%, while the 2-year yield is down about 3 basis points modestly below 0.60%. The latter remains high given this week’s aggressive shift by the Fed, which has been to some extent supported by a series of robust releases of US macroeconomic data culminating in the mixed but widely interpreted labor market report. as solid. For the week, 2-year yields were up nearly 10 basis points.
Meanwhile, longer-lasting US yields fell sharply on the week as traders worry that the emergence of Ómicron at a time when the Fed will begin to withdraw stimulus will result in weaker growth / inflation in the future. 10-year yields are down about 15 basis points for the week. The divergence has seen 2/10 year yields fall to their lowest point in 2021 at around 75 basis points, a drop of almost 25 basis points for the week.
Taking a closer look at USD / JPY then; the pair has recently rebounded after testing weekly lows at the 112.50 zone earlier in the session. The pair is currently trading around 112.75, marking a sharp turnaround.
If, in the coming weeks, the bond and currency markets remain at the height of risk rather than divergence from central bank policy, as a result, USD / JPY could break lower towards 112.00.
Additional technical levels