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USD/JPY is pushing back above 155.00 to a one-week high as the bond market continues to be the one driving broader market moves to start the week.
10-year Treasury yields are now hitting 5.03%, touching its highest level since 2007 as the selloff in global bonds continues to gather pace. German and French bond yields are also accelerating their push higher, so this isn’t purely a US story.
Inflation fears are firmly back in focus as oil prices continue to push higher on the back of geopolitical tensions. As such, markets are now overwhelmingly pricing in a 25 bps rate hike by the Fed at Wednesday’s meeting.
The combination is underpinning the dollar, as it has since the start of the week, with traders now eyeing another key break on the charts.
Since the start of September, the “Bessent put” had brought USD/JPY back down before some consolidation below 155 in the past week. But now, we can see that traders are getting anxious again as the bigger and more powerful macro story is starting to tide over markets.
For USD/JPY, the move back above 155 may be notable but the direction from here will depend less on the Fed simply delivering the expected rate hike tomorrow and more on what policymakers signal comes next.
And this is also where the bond market also retains its importance.
If the Fed reinforces the idea that inflation remains a problem and keeps the door open to further tightening, Treasury yields could stay elevated and continue to underpin USD/JPY.
Markets are already looking beyond Wednesday with expectations building that the September rate hike may not necessarily be a one-and-done move.
As we head into the decision, USD/JPY may be trading above the 155 level. However, the 10-year Treasury yields chart is arguably the more important one to watch.
This article was written by Justin Low at investinglive.com.
