US Yields and USD/JPY moving together; 6J confirms

As we wrote yesterday, US Yields and the US Dollar have been surging since the beginning of the new year. As a result, many of the US Dollar pairs, including EUR/USD have taken a hit. What about the traditional correlation markets tend to see, that between the Yen and yields? As of the time of this write, US 10-year yields are at their highest levels in 6 weeks near 1.68% and US 5-year yields are at their highest levels since February 2020, near 1.39%. Therefore, given the usual high negative correlation between yen and yields (positive correlation for yen pairs and yields), shouldn’t yen pairs by near highs?

The correlation coefficient is the statistical measure of strength of the relationship used to compare two assets. The current correlation between USD/JPY and US 10-year yields is currently +0.79. Traders should look for correlations above +0.80 and below -0.80 for them to be considered significant. +0.79 is extremely close and bears watching. If yields continue to move higher, USD/JPY may move higher with it. The USD/JPY is currently trading near the 127.2% Fibonacci extension from the highs of November 24^th, 2021 to the lows of November 30^th, 2021, near 116.30. This is the highest level since January 2017. Resistance above is at the 161.8% Fibonacci extension from the same timeframe near 117.34 and then the highs of January 2017 at 118.66. Support below is at the previous highs of 115.52, then today’s lows at 115.27. Below there, USD/JPY could fall to the 50 Day Moving Average near 114.02. Notice that the RSI is in overbought territory which indicates prices may be ready for a pullback.

Source: Tradingview, Stone X

When there is a correlation coefficient that is on the borderline between being “significant” or not, it’s always best to check other sources for confirmation. For USD/JPY, one chart to look at is that of the Japanese Yen Futures, or 6J. Notice that the chart is the inverse of USD/JPY because it is in yen terms and not US Dollar terms. The correlation coefficient is -0.80, which is considered significant. Price tested the 127.2% Fibonacci extension from the November 24^th lows to the November 30^th highs, near 0.008602. The next level of support is at the 161.8% Fibonacci extension of the same timeframe, at 0.008524. Resistance is at the previous lows near 0.008657 and today’s highs of 0.008678.

Source: Tradingview, Stone X

The move in US yields over the last 2 days has taken USD/JPY along with it for the ride. The correlation coefficient on the daily timeframe is borderline as to whether it is significant. However, if traders look at the Yen futures contract, or 6J, they can see that the front month contract has already reached the -0.80 level, giving more confidence to the significance of the correlation between the US 10-year yields and the cash pair. If this relationship holds, watch for USD/JPY to continue to move with US 10-year yields!

StoneX Financial Ltd (trading as "FOREX.com") is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, FOREX.com does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date.

This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it. No opinion given in this material constitutes a recommendation by FOREX.com or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although FOREX.com is not specifically prevented from dealing before providing this material, FOREX.com does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Financial Ltd. StoneX Financial Ltd is a company incorporated in England and Wales with UK Companies House number 05616586 and with its registered office at 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is authorised and regulated by the Financial Conduct Authority in the UK, with FCA Register Number: 446717.

FOREX.com is a trademark of StoneX Financial Ltd. This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy. FOREX.com products and services are not intended for Belgium residents.