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Sean Callow, Research Analyst at Westpac, suggests that the price action of USD/JPY pair may be gentle but 2 month highs this week are encouraging for Westpac’s long-standing medium term view that the sustained rise in US yields along the curve will attract enough unhedged demand for US bonds to underpin a return to the late 2017 levels around 113-114.

Key Quotes

“The US 10 year treasury note yield pop to 3.09% this week was a high since May, supporting USD/JPY even as the dollar struggled on other pairs.”

“Further gains are not assured however around the FOMC meeting, with fully priced rate hikes sometimes seeing profit-taking on USD longs. The “dot plot” will be closely watched.”

“Meanwhile in Tokyo, we saw more of the same from the BoJ – the very credible pledge to keep the 10yr JGB around 0% and the rather incredible claim that the amount of JGBs purchased “will increase at an annual pace of about 80 trillion yen”.”