Hawkish Fed Shift Drives USD/JPY Recovery Amid Ongoing Intervention Threat
The USD/JPY currency pair has been influenced by a hawkish shift in the Federal Reserve, which has driven up Treasury yields and led to a significant recovery from its recent collapse. The correlation between USD/JPY and US two-year yields has strengthened to +0.85 over the past week, indicating that traders should focus on shifts in the front of the US Treasury curve.
US economic surprises have rebounded sharply recently, with Citi's US Economic Surprise Index showing a strong improvement. In contrast, Japan's growth momentum has cooled, and its data pulse is losing steam. The Ministry of Finance may consider reducing bond supply to ease concerns about stagflation, but this move is unlikely to impact the yen while the US side remains dominant.
The current trend in USD/JPY is strong, with the pair above 158 after bottoming beneath 153 earlier this month. However, intervention remains a clear threat to the bullish trend, and traders should be selective when assessing risk-reward from setups.