Treasuries return above 5% as yen approaches 159.00

• Just below 159.00, USD/JPY reaches its strongest level since mid-October.
• Despite a BoJ summary showing agreement on further rate rises, the Yen weakens.
• Following September’s 1.3% increase, US producer price figures for October are due on Friday.

A 5% annual payment on new US 10-year notes sold on Tuesday marks the highest since 2006, while the Yen has weakened to its lowest against the Dollar since mid-October. Climbing to just below 159.00 Yen, the Dollar has more than recovered Monday’s decline and regained ground above Friday’s close.

October’s consumer price data indicate that inflationary pressures may endure and inflation is not trending downwards, according to Fed Vice Chair for Supervision Bowman. At 3.75%-4.00%, the Fed’s rate range stands 2.50-2.75 percentage points above the Bank of Japan (BoJ) rate of 1.25%. A Dollar deposit therefore offers roughly that much more than a Yen deposit.

Despite broad agreement among members that rates should rise further, as shown in Tuesday’s summary of the BoJ’s October meeting, the Yen continued to weaken. A BoJ increase to 1.50%, expected on 18 December, would follow a Fed move to 4.00%-4.25% nine days earlier. The rate differential would consequently remain unchanged.

US and Japanese data shape the rates outlook

At 13:30 GMT on Thursday, US weekly jobless claims are forecast at 195K, compared with 189K. October’s producer price release follows on Friday at 13:30 GMT, with annual growth expected to rise to 6.6% from 6.3%. Both releases have implications for how far US interest rates rise above those in Japan.

An annual increase of 6.5%, following 6.8%, is forecast for Japan’s October producer prices, due on Wednesday at 23:50 GMT. The release is among Japan’s final price reports ahead of the BoJ meeting on 17-18 December, at which most economists anticipate an increase to 1.50%.

Dollar tests the upper end of its Yen range

At the upper boundary of its trading range against the Yen since 24 September, the Dollar remains well below the late-July peak near 164.00 and the 2 September high near 160.50. The range extends down to the low near 156.00 recorded on 23 October.

Daily USD/JPY chart