USD/JPY: Yen struggles as US-Japan bond yield spread rises

The USD/JPY price is hovering near its highest level since March 27  last year as the market reflects on the weak data from Japan and the rising US yields. It is trading at 110.50, which is slightly below the year-to-date high of 110.96.

Weak Japan data

The Japanese statistics agency published relatively weak economic numbers earlier today. In February, the country’s household spending rose to 2.4% after dropping by 7.3% in the previous month. This increase was worse than the median estimate of 2.8%. As a result, the spending declined by 6.6% on a year-on-year basis. Consumer spending is the biggest component of the Japanese economy. 

Further, the average cash earnings declined by 0.2% in February while overtime pay fell by 9.3%. The overall wage income of employees declined by 0.2%. These numbers are pointers that the country’s corporate sector struggled in February.

Last week, data by Markit and au Jibun Bank revealed that rising demand pushed the manufacturing PMI to 52.7 in March from the previous 51.4. This was the highest figure since October 2018. In the same month, the services PMI rose to 48.3 from the previous month’s 46.3. 

The USD/JPY has also risen because of the slower vaccination push in Japan. Recent data shows that the country has vaccinated about 1% of its total population. This is substantially lower what other comparable countries have done. The US has vaccinated about 32% of the population while the UK has vaccinated 47% of the population.

The bond market performance is also having an impact on the USD/JPY price. The 10-year US bond yield has moved back to 1.70% after the recent strong economic numbers from the US. The manufacturing and services PMIs have rallied while the unemployment rate has fallen to 6.0%. This has led many analysts to predict that the Federal Reserve will hike rates earlier than expected. As such, this will widen the spread of the two country’s yields.

USD/JPY technical analysis

The daily chart shows that the USD/JPY price has been in a strong upward trend lately. It is about 1% below the highest point in March last year. Also, the upward trend is being supported by the 25-day and 15-day exponential moving averages (EMA). It is above the Ichimoku cloud. Therefore, the pair may keep rising as bulls target the important resistance at 111.73.