- US-Japan 10Y yield spread rises in the USD-positive manner.
- Still, risk reversals indicate rising demand for USD/JPY puts (JPY calls).
The USD/JPY continues to ignore the rising US-Japan yield differential.
Having topped out at 114.74 in November, the currency pair dropped to a four-month low of 108.50 yesterday. The slide contradicts the rise in the 10-year US-Japan yield differential to the highest level since April 2010.
The spread currently stands at 254 basis points; down 4 basis points from the 8-year high of 258 basis points set on Jan, 22.
Meanwhile, the one-month 25 delta risk reversals fell to a fresh 3.5 month low of -1.35 yesterday, highlighting the USD/JPY put options are more expensive (more in demand).
Clearly, the correlation between the yield differential and the USD/JPY spot has broken down and the risk reversals show investors are prepared for further losses in the pair.
25 delta Risk reversals
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.