USDJPY and the ten-year Treasury yield

[Fairman]

USDJPY and the ten-year Treasury yield

Few relationships in currency markets are as consistent as the one between USDJPY and US ten-year yields. When yields rise, USDJPY typically rises with them. When yields fall, the pair drops.

The reason is rate differentials. Japan's yields are low and stable, so changes in US yields determine the attractiveness of holding dollars over yen.

On a tick chart, the link is visible at the second level. A jump in Treasury futures, signaling a drop in yields, is followed by a drop in USDJPY within a second or two.

The lag gives a clue. When yields move first and USDJPY hasn't responded, the pair is likely to follow. When USDJPY moves on its own, the move has less support.

There are exceptions. During intervention scares or BoJ surprises, the yen drives the pair independent of US rates. And in a risk-off panic, the yen strengthens even when US yields rise.

A small chart of the ten-year yield in the corner of the screen takes little effort to set up and adds a useful filter.

On a one-minute chart, how tightly does USDJPY track the ten-year yield?