Giles Coghlan LLB, Lth, MA
Financial Source
In this video, I discuss the crucial relationship between the USD/JPY currency pair and the US bond market, particularly the ten-year treasury yields. I highlight recent interventions by the Bank of Japan to strengthen the yen, especially when the USD/JPY approaches the 160 level, which seems to be a trigger point for the Bank of Japan and the Ministry of Finance to intervene.
However, I point out that relying on continuous intervention by Japan's monetary authorities isn't a sustainable strategy, drawing a parallel to the Swiss National Bank’s experience in 2015. They eventually had to give up defending the Euro-Swiss franc floor, illustrating that central bank interventions have their limits.
Therefore, I suggest that the most probable source of yen strength is likely to come from the US bond market rather than Japan. If US ten-year yields start to fall—indicating a strong buying interest in bonds—this scenario creates a conducive environment for the USD/JPY to drop. This relationship is clearly visible on the charts, where you can see the USD/JPY closely tracking movements in the ten-year yields. So, as we move forward, keep an eye on the US ten-year yields for signs of yen strengthening, as this is likely to be a more reliable indicator than hoping for continued intervention from Japan.
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