USD/JPY Reversal Looms as Bond Yields Surge

The US dollar (USD) and Japanese yen (JPY) pair has been behaving unusually in recent weeks, despite historically supportive rates. The USD/JPY has fallen sharply over the past two weeks, contrary to expectations that it would rise with widening spreads between US and Japanese bond yields.

US Treasury yields have surged due to higher energy prices, inflation pressures, and rising expectations for a Federal Reserve rate hike. This usually supports gains for USD/JPY, but instead, the pair has fallen 2.7% over the past five sessions.

The price action on the charts suggests reversal risk, with a bullish engulfing candle forming after a pronounced leg lower. A push above 154.45 could allow longs to be established, targeting 155.50 and potentially retesting 156.68.