Yen gained ground on Friday against a basket of major rivals, extending gains for the second straight against the dollar and moving away from four-week lows, as US treasury yields lost ground.
Japan’s 10-year treasury yields gained ground today as US treasury yields conversely tumbled, reducing the yield gap between the two countries to 20-year lows.
Now the markets await the crucial US personal consumption data later today, important for providing clues on the future of US monetary policies.
The Price
The USD/JPY pair fell 0.15% today to 156.57, with a session-high at 157.03.
Yen rose 0.5% against the dollar yesterday, the first profit in three days away from four-week lows at 157.71.
Yen marked the largest daily profit since May 15 as US treasury yields lost ground.
Japanese Yields
Japan’s 10-year government yields surged by 0.7% today, approaching a 13-year peak at 1.104%.
The gains come amid expectations the Bank of Japan will reduce its purchases of government bonds in June.
The Nikkei journal said the Japanese government intends to manage 100 trillion yen of public funds proactively in upcoming months.
US Yields
US 10-year treasury yields fell 0.3% today away from four-week highs at 4.638%, in turn pressuring the greenback.
According to the Fedwatch tool, the odds of a Fed 0.25% interest rate cut in September improved to 51%, and the odds of such a cut in November increased to 64%.
Such developments came after weak US GDP growth and unemployment claims data, reducing pressure on the Fed’s policymakers.
The Yield Gap
The 10-year government bond yield gap between the US and Japan continues to hold near 340 basis points, the lowest since 2020, in turn underpinning the yen.
Tokyo’s Inflation
Friday data showed Tokyo’s baseline inflation rose 1.9% y/y in May, up from 1.6% in April.
It remains slightly below the 2% BOJ target, in turn reducing the odds of a BOJ rate hike this year.
Moves by Japanese Authorities
It’s clear that Japanese policymakers are focusing further on structural changes to the economy to underpin the yen in the forex market, as simple direction interventions have limited impact.
It’s likely that Japanese data scheduled for release on Friday will show Japan has spent nearly 9 trillion yen in the past few weeks to slow down the decline of the yen, which plumbed a 34-year nadir against the dollar at 160.
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