Bank of Japan Governor Ueda's comments were the driving force behind Tuesday's price action, but the rest will depend on developments in the bond market. And that didn't help much with the direction of USD/JPY this week. Treasury yields have also fallen significantly, and yesterday's action was a perfect example of that.
Yields were initially low, but recovered strongly in U.S. trading, with the 10-year Treasury yield rising to a high of 4.19%. It is now down 2 basis points to 4.158%, but overall it is still above the 200-day moving average of 4.10%. I would say that is still the important line for the bond market.
On the other hand, USD/JPY has been moving back and forth, but on balance it is above its own 100-day moving average (red line).
USD/JPY daily chart
The key technical level is seen at 147.51, and any upward momentum to start the new year will depend on whether prices remain above it. But this week's short-term picture tells a more complicated story. Buyers and sellers are currently competing with price action located between key technical levels.
The 100 hour moving average is 147.93 and the 200 hour moving average is 147.46. Spot prices are somewhere in between, currently highlighting a more neutral short-term bias.
If anything, the US dollar/yen pair's many ups and downs this week, but also sideways movements, also reflect movements in the bond market.
I would argue that technicals are currently the best guide in deciphering what will happen next for both US Treasury yields and USD/JPY as defined by the levels mentioned above. But if there's a lesson to be learned, it's that USD/JPY remains closely tied to the bond market for now.
