USD/JPY soars as US yields rise and Fed's hawkish tilt dominates
The US dollar against the Japanese yen (USD/JPY) has been on an upward trend, reclaiming the 158 level and pushing above it after a five-day weekend. This is largely driven by the US Federal Reserve's hawkish shift, with Treasury yields rising as markets price in additional rate hikes.
Correlation analysis shows that USD/JPY's relationship with US two-year yields has climbed to +0.85 over the past week, and roughly +0.90 against US-Japan two-year yield spreads. This suggests that traders should focus on shifts in the front of the US Treasury curve.
The improved nominal growth outlook is also evident in measures tracking data performance relative to market expectations. Citi's US Economic Surprise Index has rebounded sharply, while Japan's equivalent index has cooled down, narrowing the gap between the two.
Despite Japan's slight edge in aggregate surprises, the US economy appears to be accelerating away from the rest of developed economies. This is underscored by flash PMI data revealing growth slowing to multi-month lows in September, with inflationary pressures remaining intense.