USD/JPY: Surging Treasury yields bring back the pressure onto Japanese officials

• Dollar holds onto gains as projected rate hike bets hold firm
• Treasury 30-year auction sees soft demand as concerns grow over rising deficits
• Yen’s October rally nearly completely erased as US growth exceptionalism remains in place

The BOJ must be frustrated that the yen’s rally at the start of the month has quickly evaporated.  Pressure is growing for the Japanese officials to act otherwise, the yen could see another significant devaluation.  Last night, Bank of Japan board member Noguchi noted that  yield curve control is difficult to maintain without acting early when changes are needed.  The pressure is building for the BOJ to do something and if the yen weakens beyond the 150 level, an abrupt action might need to occur.

The US dollar initially  rallied after a hot CPI report and steady jobless claims data.  The dollar’s rally extended after tepid demand for 30-year Treasuries. Too much supply could become an issue, which is why the 30-year Treasury yield rose 18.7bps to 4.880%.

It seems like currency traders are going to have to buckle up and see what happens when USD/JPY crosses the 150 level again.  If we get more bad auctions that could really drive this bond market into a frenzy.

USD/JPY daily chart

The bullish trend clearly remains intact will likely be tested as Japanese officials will resume with verbal intervention. Market forces won’t be letting up anytime soon, so an intervention at these levels might see some traders looking to fade any action.

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