AUD/JPY - Yield differential contracts, risk reversals at 5-1/2 month low

Omkar Godbole FXStreet Contributor

The sideways action around 88.00 handle suggests indecision in the AUD/JPY market, although the bond yield differential and risk reversals indicate increased odds of a downside move ahead of the Japanese elections.

Aussie-Japan 10-yr yield spread narrows

The spread or the difference between the Aussie and Japan 10-year government bond yield currently stands at one-month low of 267 basis points.
The chart above shows the spread has breached the rising trend line support, thus it could narrow further in favor of the Japanese Yen.

Risk reversals at 5-1/2 month low

The one-week 25-delta risk reversals hit 5-1/2 month low of -2.70. The negative print shows the cheap out of the money are being favored as a hedge against Japan election surprise (a strong performance by Kibō no Tō).

Author

Omkar Godbole

FXStreet Contributor

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

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