USD / JPY rises to new weekly highs, targeting 111.00

• Evergrande’s spillover risk weighs on market sentiment.
• Yields on US 10-year bonds rose 7% on the week, propping up USD / JPY.
• The Fed’s prospects for a gradual reduction in bonds also weigh on market appetite.
• Fed Mester: “Fed would take action if inflation is not consistent with Fed targets.”

At the beginning of the Asian session, the USD/JPY It was trading in a tight 11-pip range, within 110.23-34, but as European traders hit their desk, the pair is on the rise. At the time of writing, USD / JPY is trading at 110.69, posting a 0.34% gain for the day.

Market sentiment is in a risk-free environment. On Thursday, Evergrande shares rose 15%. However, concerns about the default of its $ 83.5 interest in US dollar-denominated bonds on Thursday cloud the outlook. According to Reuters, the interest payment has not been made, leaving investors scrambling for safe-haven assets. In addition, the Fed’s plan to cut its $ 120 billion in monthly bond purchases reduced the appetite for riskier assets.

Rising US 10-year yields rose at least 7% on the week near monthly highs propping up USD / JPY

Also weighing on the USD / JPY is the 10-year yield, which is up four basis points (bps) on the day, currently at 1.454%, propping up the dollar. The US dollar index, which tracks the dollar’s performance against a basket of six pairs, is recovering some of Thursday’s losses, up 0.28% to 93.35.

Also, at the last FOMC meeting, the Fed said that the gradual reduction of its monthly bond buying program “may be justified soon,” but fails to see when and how it can start reducing its purchases. Some analysts “speculate” that they will expose the date and size of their pandemic-related stimulus reduction at the November meeting.

Earlier in the day, Cleveland Fed President Loretta Mester got down to business. He said they would take action if inflation is not consistent with the Fed’s targets. Also, he added, “Asset purchases are not doing as much right now, and I think the Fed can slow down,” further cementing the overall view of the Fed regarding reducing its QE program.

Turning to the economic data, the US Census Bureau reported that new home sales for August rose to 0.74 million better than the 0.7 million predicted by economists. The market reaction was nil. However, as the day progresses, US bond yields along with the general market mood could influence the USD / JPY pair.

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