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An interesting development is the run-up in the USD/JPY to new highs, breaking above what some people see as a three-year downtrend, even though US yields have moved sideways in the last month, according to Greg Gibbs, Analyst at Amplifying Global FX Capital.

Key Quotes                  

“The USD/JPY had appeared to re-connect with US yields since around March, after a period of disconnect in the first months of the year.”

“The USD/JPY had been incredibly tightly correlated with US yields (or the yield spread) from around mid-2016 to end-2017.”

“As such the market has gotten used to seeing USD/JPY and 10-year yields as moving in unison in recent years.”

“However, there was a significant divergence between the USD/JPY and yield spreads from early 2014 into the first half of 2016.   This may have reflected the adjustment in USD/JPY to the relative pace of QE between the Fed and BoJ.”