USD/JPY Fundamental Daily Forecast – Rising US Treasury Yields Making US Dollar More Attractive then Yen
The Dollar/Yen continues to strengthen on Friday with the Forex pair touching its highest level since March 27. It’s also in a position to finish more than 1.27% higher for the week.
The rally this week has mostly been supported by rising global equity markets and U.S. Treasury yields. The catalyst behind the rally is a more optimistic outlook for the global economy which is reducing the Japanese Yen’s appeal as a safe-haven asset. Money has also been moving rapidly into the riskier commodity-linked currencies – Australian and New Zealand Dollars – as their economies are expected to benefit the most from a global economic recovery.
At 07:51 GMT, the USD/JPY is trading 109.344, up 0.178 or +0.16%.
Japanese Shares Benefit from Weaker Japanese Yen
A weaker Japanese Yen and overall optimism about an economic rebound from a coronavirus-driven slump kept the major Asian stock indexes on track for a weekly rise on Friday.
Reflecting continued confidence in the revival of the global economy, the safe-haven yen weakened further to a two-month low. As a weak Yen boosts Japanese manufacturers’ profits made abroad when repatriated, shares of export-oriented automakers were in demand. Mazda Motor jumped 4.8%, while Nissan Motor and Honda Motor gained 2.3% and 2.5%, respectively.
Treasury Yields Continue to Rise
Rising Treasury yields are also making the U.S. Dollar a more attractive asset than the Japanese Yen. This is because of the widening interest rate differential between U.S. 10-year Treasury Notes and Japanese Government Bonds. Money always flows to the higher-yielding investment.
On Thursday, U.S. government bond yields had begun to push higher after the European Central Bank announced higher-than-expected purchases of Euro Zone debt.
Since Treasurys are considered safe-haven investments, investors are selling them as the global economy improves. When bond prices go down, yields go up. Pretty simple.
Weaker Yen Could Help Japanese Economy
The weakening Japanese Yen could actually help the Japanese economy recover from its current recession. A weaker Yen will make Japanese goods more attractive. This could lead to higher exports that could help the economy pull out of recession faster.
Economic News
In economic news, the average of household spending in Japan was down 11.1 percent on year in April, coming in at 267,922 Yen. That beat expectations for a drop of 15.4 percent on year following the 6.0 percent fall in March.
Japan will also release preliminary April data for its leading and coincident indexes today.
Daily Outlook
We’re looking for today’s U.S. Non-Farm Payrolls report to have little impact on the financial markets unless the surprise is to the upside. Traders have already priced in the worst so better than expected data will exert the most influence.
The unwinding of bets on safe-haven currencies is likely to continue. This means higher U.S. Treasury yields and a weaker Japanese Yen.
Investors are shedding the safe-haven Japanese Yen because of the broad optimism in the financial markets being fueled by the easing of social distancing restrictions and the gradual recovery of the global economy.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire
