USD/JPY: Trading tightly with US ten year Treasury yields - ING

USD/JPY continues to trade tightly with US ten year Treasury yields and Chris Turner, Research Analyst at ING suggests that they tend to think the latter could be finding a base in the 2.10/15% area and particularly by the end of 3Q17 look for yields to have picked up to the 2.50% area.

Key Quotes

“This may owe largely to passage of some modest reflationary fiscal policy ahead of the new US fiscal year (starting in October) and some modestly better US activity data. A break-out in US price pressure looks uncertain.”

“Thus if there is any further cyclical dollar strength to be seen, we believe it will be seen largely in USD/JPY.”

“In Japan, activity is quietly picking-up and the BoJ is of the view that a ‘virtuous circle’ is in place. Yet a large output gap and inflation at 0% versus a target of 2%+ will keep the BoJ at the back of the pack when it comes to normalising policy.”