USD/JPY: What is Behind the Sharp Rally

USD/JPY is on a tear this morning following the better than expected jobless claims report. I think traders are relieved that the deterioration in the labor market can officially be blamed on Mr. Frosty because jobless claims have reverted back to pre-snow storm levels. Although I am worried by the sharp rise in the number of people receiving extended and emergency unemployment benefits, that is clearly not what the market cares about right now.

USD/JPY is trading off U.S. rates (yields) and not stocks. The following chart shows the strong relationship between USD/JPY and the 10 Year U.S. Treasury yield. This relationship holds for shorter term yields as well like the 2 year bond yield


  1. I agree USD/JPY might be correlated with 10Y rates for below reasons:

    1. US Fiscal Debt needs to be financed by increasing interest rates to attract capital inflows into the US while the USD currency deteriorates.

    2. If not enough capital inflows balance the accounts then investors will sell dollars and buy YEN.

    Kind Regards,



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