- USD/JPY continues to consolidate close to the 109.00 level.
- Higher US bond yields mean the dollar is the best performing G10 currency, but the yen is holding up well.
- Risk-off/nervous market sentiment and sharp crude oil sell-off is helping the yen.
USD/JPY continues to consolidate close to the 109.00 level, as has been the case since the start of the week, during which time the pair has struggled to rally beyond 109.20 but has also remained well supported above the 108.80 mark. At present, USD/JPY trades with modest gains of under 0.2% or around 15 pips on the session.
Driving the day
Mixed US data (there was a huge beat on expectations in the latest Philly Fed survey for the month of March, but Weekly Jobless Claims data was not as good as expected) has not had a meaningful impact on the market’s broader appetite for risk nor on silver or gold markets. Looking ahead, there is unlikely to be much by way of further fundamental catalysts for the remainder or Thursday’s session. In terms of what is in store for Friday; the main focus of markets will be the outcome of US/China talks in Alaska – while USD/JPY is likely to remain focused on bond market price action for the rest of the week, any hints of worsening trans-pacific trade ties may support Asian safe-haven assets such as the yen.
Yen holding up better than many G10 peers
In recent weeks, USD/JPY has been one of the more sensitive major USD pairs to movements in rate differentials (i.e. changes in the difference between US government bond yields and say Japanese or European government bond yields), but this has not been the case on Thursday, despite a scorching sell-off in US debt markets that has sent 10-year bonds higher by more than 10bps on the day to above 1.75% at one point. While yen has weakened a touch versus the US dollar, which sits at the top of the G10 performance table for the day, it is outperforming the majority of the rest of its G10 peers.
A few factors are supporting the yen; 1) Japan is a big net crude oil importer and, as such, Thursday’s sharp sell-off in crude oil markets (WTI is down over 5% on the day) is helping the yen and 2) risk appetite remains ropey with US equity markets mixed but the S&P 500 lower by about half a percent, supporting flows into safe-haven currencies like the yen. Be aware though that if the recent move higher in US government bond yields continues at the current pace and the crude oil market sell-off stabilises (as is expected at some point), risks remain tilted towards the upside for USD/JPY.
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