USD/JPY has risen back above the 111.00-level for the first time since early July. As US yields continue to rise, the pair is set to hit year highs at 111.66, in the view of economists at MUFG Bank.
USD/JPY strongly correlated to US yields
“USD/JPY moved within touching distance of the year to date high of 111.66 from 2nd July. The next key resistance levels beyond are located at around the 112.00 and 114.00-levels.”
“Recent price action suggests that our view that there is only limited room for further yen weakness is likely to be tested. We continue to view the yen as already deeply undervalued which should help reduce scope for further weakness.”
“Our correlation analysis confirms that USD/JPY has the strongest correlations to both short-term and long-term US yields. The 30-day correlation between daily % changes in USD/JPY and the 2-year UST yield is currently at 0.71. A similar but weaker pattern is also evident for G10 FX correlations with the 10- year UST yield. USD/JPY clearly has the strongest correlation at 0.58. Upward pressure on US yields should continue to provide a lift for USD/JPY in the near-term.”