Market update: JPY weakens as Treasury yields rise

The Japanese yen weakened against its major counterparts after the first trading day of this week.

Its decline coincided with a rise in Treasury yields. The 10-year rate just gained for a seventh day in a row, the longest winning streak since April 2022. As mentioned in this week’s outlook, the Japanese yen will remain sensitive to external economic and financial market development.

With the Bank of Japan maintaining an ultra-loose monetary policy, that means yields elsewhere will mostly determine the fate of JPY. In this case, ongoing economic optimism in the US continued to support bond yields over the past 24 hours.

Meanwhile, financial markets seemingly remain hopeful that US politicians can come together on a debt ceiling deal ahead of a potential default.

A key risk for the Japanese yen this week will likely come from the US Core PCE Deflator print on Friday. This is the Federal Reserve’s preferred inflation gauge. Further signs that price pressures in the world’s largest economy remain sticky would undermine the central bank’s communicated pause from the latest policy meeting. That could push up Treasury yields and influence global bond rates.

Looking to the remaining 24 hours, Tuesday’s Asia-Pacific trading session is lacking notable economic event risk.

Later in the day, a slew of US PMI data will cross the wires at 13:45 GMT. If preliminary May figures look promising, that could further push up bond yields, denting the Japanese yen. In the meantime, ongoing financial market sentiment may keep JPY on its toes.

Japanese yen technical analysis

On the daily chart, USD/JPY is once again attempting to break above the ceiling of an Ascending Triangle chart pattern. Pushing higher could open the door to extending the uptrend since the beginning of this year. However, keep a close eye on RSI. Negative divergence is showing that upside momentum is fading. That can at times precede a turn higher.

USD/JPY daily chart

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