USD/JPY consolidates around 104.00 as US yields drop

• USD/JPY traded largely as a function of USD fluctuations on Monday, swinging from lows at 104.00 to 104.30 and back again.
• Falling US real and nominal yields provided some tailwind to JPY on Monday and USD/JPY is set to close with marginal losses.

USD/JPY has consolidated within a tight range around the 104.00 level in recent trade, having seen more volatility earlier on during Monday’s session. The pair swung from open levels around 104.00 to as high as 104.30 on USD strength early in the European morning, only to reverse back to the big figure by the start of the US session. Going into the Monday FX close, the pair trades with losses of around 10 pips or 0.1%.

US yields support JPY appreciation

US yields dropped and the treasury curve flattened on Monday, amid flows into haven assets as US equities came under minor pressure. 10-year Treasury yields fell 4bps to 0.929%, 10-year real rates dropped 3bps to -0.97% and the nominal 2s/10s spread dropped by 3.2bps to 78.4bps. Falling US yields thus decreased the attractiveness of USD investments relative to Japanese government bonds, underpinning selling pressure in USD/JPY.

The pair is likely to continue to be sensitive to rate differentials for the remainder of the week, though JPY is also likely to be jumpy on any news that the Pfizer/BioNTech vaccine has been authorised for usage (likely to come on Thursday). Meanwhile, any news regarding potential progress on fiscal stimulus might also trigger volatility in the pair.

USD/JPY stuck within recent ranges

USD/JPY continues to trade within recent ranges; to the upside, the top of the late-November/early-December range is at 104.75 (the 24 November and 2 December highs) and to the downside, the bottom of the range comes in at roughly 103.70 (the 18 and 23 November and 3 December lows).