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11 Feb 2014
Flash: USD/JPY could trade higher, supported by yields - RBS
FXStreet (Bali) - According to Greg Gibbs, FX Strategist at RBS, higher US bond yields means the USD/JPY will probably be well supported going forward.
Key Quotes
"Other factors that continue to support the USD/JPY are the ongoing deteriorating trend in the external balance. While this too may be exaggerated by the bring-forward of demand ahead of the consumption tax hike, it still suggests there is a trend decline with export volumes growing only modestly."
"Inflation expectations are still tending to rise in Japan according to the breakevens on inflation indexed bonds. While this is more pronounced for short dated bonds that are building in the consumption tax hikes, it is also apparent on longer term bonds as well."
"Since Oct-13, 5yr inflation expectations in Japan are up from 1.69% to 2.14%, rising above those in the US at 1.94%, narrowing the gap to a declining UK expectation of 2.73% and widening the gap over declining German expectations of 0.77%."
"While the nominal 5 year swap rate spread has fallen recently in line with lower US yields and helps account for a weaker USD/JPY, the real rate spread suggests that USD/JPY could trade higher."
Key Quotes
"Other factors that continue to support the USD/JPY are the ongoing deteriorating trend in the external balance. While this too may be exaggerated by the bring-forward of demand ahead of the consumption tax hike, it still suggests there is a trend decline with export volumes growing only modestly."
"Inflation expectations are still tending to rise in Japan according to the breakevens on inflation indexed bonds. While this is more pronounced for short dated bonds that are building in the consumption tax hikes, it is also apparent on longer term bonds as well."
"Since Oct-13, 5yr inflation expectations in Japan are up from 1.69% to 2.14%, rising above those in the US at 1.94%, narrowing the gap to a declining UK expectation of 2.73% and widening the gap over declining German expectations of 0.77%."
"While the nominal 5 year swap rate spread has fallen recently in line with lower US yields and helps account for a weaker USD/JPY, the real rate spread suggests that USD/JPY could trade higher."