|

USD/JPY Forecast: Bond yields do not support USD comeback

The Dollar-Yen pair is flirting with the resistance offered by the trend line sloping downwards from the Aug. 2015 high and Dec. 2015 high.

As of writing, the spot is trading around 114.17 levels. The pair hit a low of 113.62 after the data released in the US showed the average hourly earnings (referred to as wage growth figure) growth stalled in October, missing the estimate of 0.2%.

However, the drop to 113.62 was short lived. The argument put forward by the analyst community is that the drop in the underemployment to 7.9 percent could push up wages ni the near futures. Though the argument sounds logical, so far, the labor market tightening hasn't really translated into higher wage growth. That said, it remains to be seen if the situation changes for good in the future.

The other reason for the strong dip demand could be the increased odds of tax reforms. Whatever the reason, the USD is on the rise, but the treasury yields aren't buying the bullish case-

Treasury yield curve flattest since 2007

10Y US-Japan yield spread struggles to gather upside traction

  • First of all, the 10-year US Treasury yield is set to end the week well below the key technical level of 2.4 percent.
  • The yield curve (spread/difference between the US 10-year yield and the 2-year yield) continues to slide; has hit a a fresh 10-year low of 71.88 basis points. A flatter yield curve is bad news for the USD, given the December rate hike has been priced-in by the markets.
  • The 10Y US-Japan yield spread has retreated from 260 basis points (Oct. 26 high) to 250 basis points (today's level).

Also worth noting is that the technical breakout could lack conviction.

Weekly chart - Don't trust the sideways breach of the trend line hurdle 

  • The above chart shows, the currency pair is trading exactly at the falling trend line resistance of 114.17.
  • What USD bulls need is a convincing breakout, i.e. a weekly close well above 114.17... at least above 114.50. A sideways breach - the spot ends the current week at or close to 114.17 and opens above the trend line on Monday - cannot be trusted. Sideways breach of key resistance levels shows the market lacks conviction.

View

  • Consolidation with bearish bias is likely over the next week, if the pair fails to end the current week well above 114.17. FXStreet USD/JPY Forecast Poll shows the analyst community expects the pair to trade in the sideways manner next week.
1 Week
Avg Forecast 114.43
100.0%44.0%22.0%0203040506070809010000.10.20.30.40.50.60.70.80.910
  • 22% Bullish
  • 22% Bearish
  • 56% Sideways
Bias Sideways
1 Month
Avg Forecast 115.24
100.0%84.0%67.0%06570758085909510000.10.20.30.40.50.60.70.80.910
  • 67% Bullish
  • 17% Bearish
  • 16% Sideways
Bias Bullish
1 Quarter
Avg Forecast 113.88
100.0%62.0%31.0%03040506070809010000.10.20.30.40.50.60.70.80.910
  • 31% Bullish
  • 31% Bearish
  • 38% Sideways
Bias Sideways
  • Only a convincing close above 114.50  would open up upside towards 115.50 (Mar. high).

Also Read - USD/JPY rangebound between 113.00/114.50 – UOB

Author

Omkar Godbole

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

More from Omkar Godbole
Share:

Editor's Picks

AUD/USD bounces off multi-month low, nears 0.6900

AUD/USD edges higher toward 0.6900 in the Asian session on Wednesday, recovering some of the previous day’s losses to its lowest level since March as the US Dollar stalls the hot US CPI-inspired rally amid hopes of a US-Iran peace deal. Meanwhile, hawkish comments from FOMC members have almost confirmed another December rate hike, which favors USD bulls and should cap the Aussie.

USD/JPY remains capped below 159.00 amid looming intervention risks

USD/JPY struggles to build on the previous day’s strong gains to a near one-month top as intervention risk supports the Japanese Yen while hopes of a US-Iran peace deal cap the safe-haven US Dollar. That keeps the pair's upside limited below 159.00, for now.

Gold: The $4,000 mark holds the downside, for now

Gold adds to Tuesday’s small pullback and remains close to the key $4,000 mark per troy ounce on Wednesday. The yellow metal’s continuation of the downward trend comes against the backdrop of a robust performance of the US Dollar, rising US Treasury yields across the board and rising bets of extra rate hikes by the Fed.

Crypto Today: Bitcoin, Ethereum and XRP struggle to find footing amid spot ETF outflows

Cryptocurrency prices are broadly consolidating near key lower support levels on Wednesday, led by Bitcoin, hovering around $74,000. Ethereum sits above $2,000 while its upside remains structurally capped. Ripple, meanwhile, holds delicately above $1.00.

Ten questions for China in 2027

2026 has been a year of slowing growth and increasing divergence within China's economy. We saw the gap between external and domestic demand, as well as between the new economy and the old economy, widen significantly. Here, we look ahead to the key questions facing China in 2027.

What the US CPI headline doesn’t tell you about inflation

Brent crude has fallen about a third since mid-October on hopes the Iran war is ending, but diesel, freight and fertiliser costs haven't followed. Those costs reach US consumer prices in stages through 2027 and could keep inflation high after gasoline gets cheaper.