USD/JPY Relationship Breaks Down Amid Seasonal Portfolio Flows
The relationship between USD/JPY and front-end US Treasury yields has broken down, a development that occurred abruptly last week. This disconnection coincided with the calendar turn and the start of Japan's fiscal year's second half.
However, the reaction to Friday's non-farm payrolls report suggests this may be only temporary. A strong rebound in US 2-year yields was mirrored by a similar move in USD/JPY.
Speculative yen longs have been rapidly unwound, with the position more than halving over the past fortnight to a net long of 55,440 contracts as of last Tuesday. This may be related to seasonal portfolio outflows, particularly due to Japan's NISA scheme.
In the week ahead, event risk is low in the US, but Fed speak and Monday's ISM services PMI will likely drive USD/JPY volatility. BOJ Governor Kazuo Ueda's speech on Tuesday may also provide clues about the pace of BOJ tightening.