The yen’s woes continue, as the US dollar continues to beat up on the Japanese currency. The main catalyst behind the recent strength of the US dollar has been the recent rise in US Treasury yields. While the 10-year bond climbed to 1.60% earlier on Monday, 30-year bonds has rose to 2.31%. The Japanese yen is particularly sensitive to rate differentials between the US and Japan, thus increases in US yields are putting strong pressure on the Japanese currency.

The Senate passed a massive 1.9 trillion dollar stimulus package on Saturday. The bill now returns to the House for some amendments, and will likely to be signed into law by President Biden by March 14. This news supports the greenback positively.

A surprisingly strong US Nonfarm Payrolls last week has provided the US dollar with further upward momentum. The gain of 379 thousand easily beat the forecast of 197 thousand, and was the highest reading since October 2020.

“Rising U.S. bond yields are obviously driving the dollar but what’s behind them is the realisation that U.S. vaccination programme is going ahead very fast and the U.S. economic normalisation may happen earlier than people have expected, perhaps by a quarter or two,” said an senior strategist.

On the other hand, According to a recent news, Japan’s economy expanded at a slower-than-initially-reported pace in October-December, with firms tightening spending on plant and equipment and sharply cutting inventories as the coronavirus pandemic hit demand. The slower growth was mainly due to a sharper contraction in private inventories and capital expenditure expanding less than previously thought in the fourth quarter, even as exports remained solid.

Separate data showed household spending was hit by a bigger annual drop in January than in the prior month, a sign the COVID-19 pandemic was keeping consumers cautious about shopping. The economy grew an annualised 11.7% in October-December, weaker than the preliminary reading of 12.7% annualised growth to mark the second straight quarter of growth.

USD/JPY 4 Hour chart:

Support: 108.44 (S1), 108.02 (S2), 107.77 (S3).

Resistance: 109.11 (R1), 109.36 (R2), 109.79 (R3).

US dollar seems to be stronger against the Japanese yen as per all the factors. We expect a bullish trend for USD/JPY.