USD/JPY Inter-Market: Watch Divergence US-Japan Yield Spread
USD/JPY Inter-Market: Watch Divergence US-Japan Yield Spread
USD/JPY
presents some significant divergence when analyzed against its 10-year
US-JP yield spread, as a result of what has been an major withdraw of
liquidity by market makers ever since BOJ's disappointing inaction on
April 28th, paired with bouts of risk-off.
USD/JPY out of whack with US-JP yield spread
The
20-day correlation coefficient between USD/JPY and the 10-year US-JP
yield spread stands at 0.38 at present from levels as high as 0.8 back
in early April. The current US-Japan yield spread in the 10-year bonds
is essentially almost the same it was prior to BOJ decision on April
28th, time when the rate was exchanging hands circa 112.00. What is
more, the fact that the VIX (fear barometer) edged significantly lower
last Friday (20-day coefficient correlation quite tight at -0.72),
coupled with counter-intuitive USD strength on a US NFP miss, provides a
solid background in which bulls may feel re-assured to perceive value.
Bulls have 'pending' catch -up if risk environment allows
Should
the 'risk-off' environment recede, USDJPY is likely to be underpinned
given that its macro intrinsic valuations appear to be relatively cheap,
as bulls have been so far unable to participate in this most recent DXY
bounce due to cross-yen supply from risk off flows, which has caused
the suppression of the exchange rate sub 107.00.
If equities can
now catch a bid tone on improved oil prices in Asia (Oil has spiked to
near $46 on Saudi Arabia news from $44.50 Friday), and the environment
can now switch to a constructive risk on, there may be some genuine
opportunities to participate in Yen short business.
