Japanese Yen Weakens as Treasury Yields Rise, USD/JPY Triangle Breakout in Focus

Japanese Yen, USD/JPY, Treasury Yields, Ascending Triangle – Brief:

• Japanese Yen Weakens to close out the first trading day of the week
• Rising Treasury rates continue to put pressure on the yield-sensitive currency
• US dollar / Japanese yen Focus is on the breach of the ascending triangle chart pattern

Japanese yen weakened as treasury yields rose

The Japanese Yen weakened against the major currencies after the first trading day this week. Its decline coincided with a rise in Treasury yields. The 10-year rate rose for the seventh consecutive day, the longest consecutive gain streak since April 2022. As mentioned in this week’s outlook, the Japanese yen will remain sensitive to the development of external financial and economic markets.

With the Bank of Japan maintaining ultra-loose monetary policy, this means that yields elsewhere will mostly determine the JPY’s fate. In this case, continued economic optimism in the US continued to support bond yields over the past 24 hours. Meanwhile, financial markets seem to still be hoping that US politicians can come together on a debt ceiling deal before a possible default.

The main risks for the Japanese yen this week are likely to come from the reading of the Core Oil Reflation Index in the US on Friday. This is the Fed’s preferred measure of inflation. More signs that price pressures in the world’s largest economy remain steady should undermine the central bank’s announced pause at its latest policy meeting. This could raise Treasury yields and affect global bond prices.

Given the remaining 24 hours, Tuesday’s Asia Pacific trading session lacks significant economic event risk. Later in the day, a series of US PMI data will cross at 13:45 GMT. If the preliminary figures for May look promising, this could lead to an increase in bond yields, affecting the Japanese yen. In the meantime, sentiment in financial markets may keep the yen on alert.

Technical analysis of the Japanese yen

On the daily chart, the USD/JPY pair is once again trying to break above the ceiling of the ascending triangle pattern. A push higher could open the door for an extension of the bullish trend since the beginning of this year. However, keep a close eye on the RSI. The negative divergence shows that the bullish momentum is fading. This can sometimes precede a turn up.

USD/JPY daily chart

Chart created in TradingView

– By Daniel Dubrovsky, Chief Strategist for DailyFX.com