US Growth Momentum Drives Rebound in USD/JPY
The USD/JPY exchange rate has been driven by the strengthening nominal growth outlook in the US, which is causing Treasury yields to rise. This hawkish shift has led to a rebound in the pair's value, with it reclaiming 158 after collapsing at the start of the month.
The correlation between USD/JPY and front-end US yields remains historically elevated, with a relationship of +0.85 against US two-year yields over the past week. This suggests that traders should focus on shifts in the front end of the US Treasury curve rather than intervention from Japan or the US Treasury.
The improved nominal growth outlook is also reflected in measures such as Citi's US Economic Surprise Index, which has rebounded sharply. In contrast, Japan's equivalent index has come off the boil, narrowing the gap between the two.