Over past six month, dollar-yen has tracked 10-year US yields.
The softness of yields warns of a bit more downside risk to the dollar vs. yen.
The relationship does not appear stable.
This Great Graphic, created on Bloomberg, shows the yield on the US 10-year Treasury note (white line) and the dollar-yen exchange rate (yellow line). The chart covers the past year.
The first half of the period did not show a strong co-movement. However, the past six months and especially this year's price action, have shown a tighter fit.
The heaviness of US Treasury yields suggests the dollar has scope to ease further against the yen. The lower end of the dollar's recent range comes in near JPY101.20, though the low for the year was set in early February near JPY100.75. Yet we caution against extrapolating as some are inclined to do that that the is a stable relationship between US yield increase and the dollar-yen exchange rate over the longer term.
The decline in US 10-year yields in the face of Fed tapering is one of the big surprises this year alongside the weakness in Japanese stocks and the depreciation of the Chinese yuan.
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