Bullish Signal Emerges Amidst Unprecedented Yen Strength

The US-Japan yield spread has widened at an unusually fast pace in recent sessions. This rare event is normally supportive of gains for USD/JPY, but the pair has instead fallen sharply over the past two weeks.

This disconnect may be due to record intervention and strong support from the US Treasury, which have artificially propped up the yen's strength. However, with bond yields still rising and a bullish engulfing candle forming on the charts, reversal risk is increasing.

The market is awaiting key data releases, including the US CPI report, which will likely influence the Fed's decision to raise interest rates next week. If the data shows signs of inflation, it may solidify expectations for a rate hike and further pressure USD/JPY.