Temporary dip in U.S. government bond yields? | The future of the foreign exchange market 137th installment (updated 2021.06.11)

In Japan's only FX specialty magazine, FX攻略.com, which had a popular series exceeding 130 installments, "The Outlook for the Future Foreign Exchange Market." We continue to ask economist Tomotaro Tajima what he predicts about how the constantly moving market will behave in the future, even on the web.

Tomotaro Tajima Profile

Tajima Tomotaro. Economic analyst. President and CEO of Alfinaunts. Born in Tokyo in 1964. After graduating from Keio University, he joined Mitsubishi UFJ Securities and later switched careers. He analyzes and researches a wide range from finance and economics to strategic corporate management, and even personal asset formation and fund management. He serves as a lecturer for lectures, seminars, and training organized by private companies, financial institutions, newspapers, local governments, and various business associations, with about 150 speaking engagements per year. He has written many serialized articles and comments in print media such as Weekly Gendai "The Rules of Online Trading," Examina "Money Maestro Training Course," and more. He also writes columns on numerous websites about stocks, foreign exchange, etc., and is highly regarded as a stock and FX strategist. He has also contributed to the Home Economy section of Shakai Kijun-sha's "Gendai Yogo no Kiso Chishiki." He has made regular appearances on television (TV Asahi "Yaji-uma Plus," BS Asahi "Sunday Online") and radio (MBS "Tetsu-chan no Asa-ichi Radio"), and currently serves as a regular commentator on Nippon Keizai Shimbun CNBC's "Market Wrap" and Daiwa Securities Information TV's "Eco☆Marche." His main DVDs include "Very Easy to Understand. Tajima Tomotaro's FX Introduction" and "Very Easy to Understand. Tajima Tomotaro's FX Practical Technical Analysis." His major books include "Wealth Reconsideration Manual" (Pal Publishing), "FX Chart: The Formula for Profit" (Alchemix), "Why Can FX Make You Wealthy?" (Texts), and many others. The latest publication is "How to Profit by Riding the Rising U.S. Economy" (Jiyu Kokuminsha).

The Decline in U.S. Treasury Yields is a "Reason" and "Temporary"!?

Yesterday (the 10th), the May U.S. Consumer Price Index (CPI) was 5.0% higher than the same month a year earlier for the "All Items" index, surpassing market expectations and the previous month's figures by a wide margin.

Looking at this result alone, one might feel that the current inflation cannot be ignored. However, a closer examination reveals that the main drivers were a rapid rebound in travel-related sectors such as used cars and airfares, which had been weak during the Covid period. Moreover, this is a year-over-year comparison with May of last year, so it is clear that there is a significant distortive base effect at play.

In other words, the recent rise in prices is likely temporary, and there is probably no need to panic over the data for the last several months. That is why one might say, "That is why U.S. 10-year yields fell further into the 1.4% range yesterday." However, this is a somewhat complex matter, so we should avoid naive assumptions and be cautious about FX trades based on such assumptions.

What are the Near-Term Prospects for Dollar/Yen and Euro/Dollar?

The recent decline in U.S. Treasury yields seems to be related to U.S. Treasuries —