The early morning Asian sessions saw some peculiar moves with the USDJPY pair falling to a low of 154.56. There are rumors of possible FX intervention from BoJ to save their vulnerable Yen. Simultaneously, there was strong buying pressure for the US 10year which is pulling yields down aggressively.
The US 10-year yield is showing signs of pulling back following the strong selling pressure since March and we should keep a hawk’s eye on yields given the volatility on the USDJPY pair.
I however expect the broader treasury sell-off to continue as long as the Fed stiks to its current hawkish stance. Big data is on the calendar as well with the FOMC statement and the US NFP's. A failed break below 4.50% will allow the US 10-year to return to the 2023 high of 5% in my opinion.
The yen is a particularly important domino in the current financial system since it is the carry trade currency of choice and Japan is also the biggest holder of US treasuries with roughly $1,500 billion US treasuries on their books. Intervention methods to save the yen will either be to sell-off US treasuries or increase interest, both of which cause the carry trade margin to decrease which will severely rattle the foundations of the financial system. The carry trade has been an exceptionally profitable one since the inception of casino capitalism as it allows investors to borrow (sell the yen) at 0% interest and then re-investing those borrowed funds into higher yielding bonds. This system is however showing sign of fragility and fx intervention from Japan may just close the buffet on this free lunch…
The US 10-year yield is showing signs of pulling back following the strong selling pressure since March and we should keep a hawk’s eye on yields given the volatility on the USDJPY pair.
I however expect the broader treasury sell-off to continue as long as the Fed stiks to its current hawkish stance. Big data is on the calendar as well with the FOMC statement and the US NFP's. A failed break below 4.50% will allow the US 10-year to return to the 2023 high of 5% in my opinion.
The yen is a particularly important domino in the current financial system since it is the carry trade currency of choice and Japan is also the biggest holder of US treasuries with roughly $1,500 billion US treasuries on their books. Intervention methods to save the yen will either be to sell-off US treasuries or increase interest, both of which cause the carry trade margin to decrease which will severely rattle the foundations of the financial system. The carry trade has been an exceptionally profitable one since the inception of casino capitalism as it allows investors to borrow (sell the yen) at 0% interest and then re-investing those borrowed funds into higher yielding bonds. This system is however showing sign of fragility and fx intervention from Japan may just close the buffet on this free lunch…