FX.co ★ Yen dances to America's tune. USD/JPY quotes reached highest level in 14 months amid rapid growth in US Treasury yields

Expectations of high inflation, Joe Biden's signing of the $1.9 trillion fiscal stimulus bill, and the fact that the Treasury sold $120 billion worth of 10 and 30-year maturities at the end of the week to March 12, contributed to a rise in 10-year yields above 1.6%. This circumstance pushed the USD/JPY quotes to the highest level since the beginning of 2020. And it seems that the bulls are not going to stop.

Supply-side indigestion is a term used to indicate that investors who have increased their portfolios at auctions are in no hurry to buy bonds on the secondary market, which leads to falling prices and higher yields. Rising rates in the US debt market widen the yield differential with its Japanese counterparts, which is the main driver of the yen's weakening. At the same time, the Bloomberg insider, who claims that at the meeting on March 18-19, the Bank of Japan will consider how to increase the volatility of the local debt market, looks quite strange. The weakening of the national currency will theoretically contribute to the acceleration of inflation, and this is exactly the goal set by the BoJ.

Dynamics of the yield of bonds of the USA, Japan, and Germany

It seems that the central bank is nervous about its inability to accelerate consumer prices and starts to worry about what people think of it. The desire to increase the volatility of bonds without pushing the target range of +/- 0.2% on the yield of 10-year bonds looks like an attempt to smooth out their guilt for the excessive presence in the debt market. Due to the high proportion of securities in its portfolio, the Bank of Japan is often called the "whale in the pond". On the contrary, the most likely decision that the range will not be extended to +/- 0.3% is associated with the reluctance of Haruhiko Kuroda and his colleagues to follow the lead of the financial markets.

In my opinion, traders should not dwell on the peculiarities of the BoJ, because, despite such an important event as the Monetary Policy Review, Deutsche Bank calls the March meeting of the Board of Governors very predictable and the most boring since the introduction of the yield curve control in 2016. In addition, the direction of movement of the USD/JPY pair is set not by the Bank of Japan, but by the yield of US Treasury bonds.

When the Fed does not show concern about rising debt rates, considering it a reflection of the strength of the US economy, bond sellers are difficult to stop. Especially since high inflation and growing volumes of emissions in the primary market are on the way due to large-scale fiscal incentives from President Joe Biden. Nevertheless, as early as March 16-17, Fed Chair Jerome Powell and his colleagues may pay more attention to tightening financial conditions, which will stabilize the debt market and stop the bull attacks on USD/JPY.

Technically, despite the possible consolidation of the pair in the short-term, its prospects for the long-term investment horizon remain bullish due to the implementation of the "Deception-Outlier" pattern. The targets 112.5 and 114.5 are still relevant. The recommendation is to buy.

USD/JPY, Daily chart