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USD/JPY: US Dollar Eyes 2019 Lows vs Yen as Yields Plunge

USD/JPY: US Dollar Eyes 2019 Lows vs Yen as Yields Plunge

Rich Dvorak, Analyst


  • USD/JPY whipsawed from 10-month highs to 5-month lows after spot prices took a staggering 550-pip spill over a matter of days
  • A reversal lower in the US Dollar appears driven largely by FOMC rate cut expectations amid the coronavirus outbreak and subsequent rise in global recession risk
  • The Japanese Yen may continue rising versus its US Dollar counterpart with Treasury yields cratering to record lows

USD/JPY is set to record its largest percent decline over the last 10 trading sessions since August 2016. The ongoing slide in the US Dollar relative to the Japanese Yen has completely reversed the ‘fake-out breakout’ notched earlier this year and then some. In fact, the 550-pip breakdown in spot USD/JPY price action since February 20 has pushed the major currency pair back to 5-month lows.

Recently, the US Dollar and Japanese Yen have been strong-armed indirectly by the novel coronavirus (COVID-19) and corresponding havoc that the festering public health pandemic is having on global business activity.

The new coronavirus outbreak that began it Wuhan, China earlier this year was felt particularly by neighboring Asian countries, like Japan, which fueled expectations for additional monetary policy stimulus from the BOJ (Bank of Japan).

While this development initially helped USD/JPY spike to a 10-month high in February, spot prices have since whipsawed to the downside and brings 2019 lows into focus.


USDJPY Price Chart Forecast US Dollar Japanese Yen

Chart created by @RichDvorakFX with TradingView

USD/JPY just probed the 106.50 mark, which is a key technical level underpinned by intraday lows printed last October. If this modicum of technical confluence fails to provide support to the Dollar-Yen cross, USD/JPY bears might target the September 2019 lows near the 106.00 price.

This level is also highlighted by the 78.6% Fibonacci retracement of the bullish leg recorded by USD/JPY from August last year to February this year. The aforementioned areas of technical support could provide an opportunity for USD/JPY to stymie recent downside.

Yet,the aggressive drop in spot price action shows potential to keep bleeding lower, as it seems as though market fundamentals may dominate the broader direction of USD/JPY.


USDJPY Price Chart US Dollar Forecast Treasury Yields Japanese Yen

Chart created by @RichDvorakFX with TradingView

That said, interest rates on US Treasuries have taken an unprecedented tumble to all-time-lows across various maturities. For example, the ten-year Treasury yield is now trading below 1.00% for the first time ever as investors race into safe-haven assets – like US government bonds. There is an inverse relationship between bond prices and yields (e.g. Treasuries rise as interest rates fall).

US Treasuries have skyrocketed over the last several months as global GDP growth keeps getting pressured lower. Heightened trade war uncertainty last year forced the Fed to abruptly pivot from hawkish to dovish, which explains the steep slide in Treasury rates throughout 2019. Now, amid rekindled recession odds as economic fallout from the novel coronavirus crimps business activity and hammers market sentiment, it looks like ten-year Treasury yields just fell off a cliff.

The trend lower in yields on US Treasuries appears set to continue following an emergency 50-bps interest rate cut from the Fed earlier this week. The latest move by the Federal Reserve is believed to have increased the probability of further capitulation to market expectations and is reflected by the futures-implied Fed funds rate (FFR). Specifically, traders are pricing another 75-bps of interest rate cuts from the FOMC by the end of April, which would more than halve the present target policy rate range of 1.00-1.25%.

As such, it seems likely that the US Dollar could continue hemorrhaging – particularly against the Japanese Yen – as forex market participants react to an acceleration in Fed rate cut bets. Spot USD/JPY price action may correspondingly remain under pressure, and perhaps target 2019 lows around 104.50 mark, with the ten-year Treasury yield leading the drive lower.

Keep Reading: Currency Carry Trade – What is it and How Does it Work?

-- Written by Rich Dvorak, Junior Analyst for

Connect with @RichDvorakFX on Twitter for real-time market insight

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.