US Yields and USD/JPY moving together; 6J confirms

If the correlation continues to be strong, watch for USD/JPY to continue to move with US 10-year yields


As we wrote yesterday, US Yields and the US Dollar have been surging since the beginning of the new year.  As a result, many of the US Dollar pairs, including EUR/USD have taken a hit.  What about the traditional correlation markets tend to see, that between the Yen and yields?  As of the time of this write, US 10-year yields are at their highest levels in 6 weeks near 1.68% and US 5-year yields are at their highest levels since February 2020, near 1.39%.  Therefore, given the usual high negative correlation between yen and yields (positive correlation for yen pairs and yields), shouldn’t yen pairs by near highs?

The correlation coefficient is the statistical measure of strength of the relationship used to compare two assets. The current correlation between USD/JPY and US 10-year yields is currently +0.79.  Traders should look for correlations above +0.80 and below -0.80 for them to be considered significant.  +0.79 is extremely close and bears watching. If yields continue to move higher, USD/JPY may move higher with it.  The USD/JPY is currently trading near the 127.2% Fibonacci extension from the highs of November 24th, 2021 to the lows of November 30th, 2021, near 116.30. This is the highest level since January 2017.  Resistance above is at the 161.8% Fibonacci extension from the same timeframe near 117.34 and then the highs of January 2017 at 118.66.  Support below is at the previous highs of 115.52, then today’s lows at 115.27.  Below there, USD/JPY could fall to the 50 Day Moving Average near 114.02.  Notice that the RSI is in overbought territory which indicates prices may be ready for a pullback.

20220104 usdjpy daily

Source: Tradingview, Stone X


When there is a correlation coefficient that is on the borderline between being “significant” or not, it’s always best to check other sources for confirmation.  For USD/JPY, one chart to look at is that of the Japanese Yen Futures, or 6J.  Notice that the chart is the inverse of USD/JPY because it is in yen terms and not US Dollar terms.  The correlation coefficient is -0.80, which is considered significant.  Price tested the 127.2% Fibonacci extension from the November 24th lows to the November 30th highs, near 0.008602.  The next level of support is at the 161.8% Fibonacci extension of the same timeframe, at 0.008524.  Resistance is at the previous lows near 0.008657 and today’s highs of 0.008678.

20220104 6J daily

Source: Tradingview, Stone X

The move in US yields over the last 2 days has taken USD/JPY along with it for the ride.  The correlation coefficient on the daily timeframe is borderline as to whether it is significant.  However, if traders look at the Yen futures contract, or 6J, they can see that the front month contract has already reached the -0.80 level, giving more confidence to the significance of the correlation between the US 10-year yields and the cash pair.  If this relationship holds, watch for USD/JPY to continue to move with US 10-year yields!


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