USD/JPY renews five-year top around 118.00 on strong US Treasury yields
- USD/JPY prints six-day winning streak to refresh the highest levels since January 2017.
- US five-year Treasury yields refresh record top, 10-year coupon renew monthly peak.
- Market sentiment dwindles as Russia-Ukraine peace talks contrast Moscow’s invasion, harsh demand.
- Fresh covid woes in China, all-time high US inflation expectations also contribute to bullish bias ahead of the key FOMC.
USD/JPY remains on the front foot around the highest levels in five years, up 0.45% intraday near 117.77 heading into Monday’s European session. Earlier in Asia, the yen pair refreshed a multi-day peak with 117.87 as the US bond bears propel greenback’s demand ahead of this week’s key Federal Open Market Committee (FOMC).
US five-year Treasury bond yields renew all-time high above 2.0% amid record inflation expectations. That said, the 10-year bond coupon also renews a one-month high of around 2.04% at the latest. It’s worth noting that the US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, rallied to the record high of 2.94% by the end of Friday’s North American session.
The US Dollar Index (DXY) tracks firmer yields to the north while printing a three-day uptrend around 99.16.
In addition to the hopes of a 0.50% rate hike from the Fed, as perceived from the CME’s FedWatch Tool, fears of further tension between Ukraine and Russia also underpin the US dollar’s safe-haven demand. Although weekend headlines suggested ‘brighter’ progress in the peace talks, the latest shelling of the Russian military inside Ukraine joins high demands from both the rivals to dim prospects of any peace.
Elsewhere, China reports the highest daily covid infections since May 2020 and announced lockdown in Shenzhen city. The fresh fears of coronavirus in China renew early pandemic woes and trim the initial risk-on mood in Asia.
Amid these plays, Japanese Prime Minister Fumio Kishida criticized Russia’s invasion and push for a new international order while also turning down the need for nuclear talks with the US.
That said, USD/JPY is likely to witness further upside amid hopes of the Fed’s rate-hike, as well as geopolitical and covid woes. Though yen is also considered a safe-haven and hence the quote may drop should the US Treasury yields retreat from multi-day high.
Technical analysis
An upward sloping trend line from late November 2021, around 117.90 by the press time, restricts the USD/JPY pair’s immediate upside ahead of 2017’s year top surrounding 118.65.