Shocking: From the U.S. yield curve, USD/JPY could fall below 100 yen
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Now, the theme this time isU.S. yield curve.
As of December 13, 2017, U.S. Treasury yields are as follows.
★ 10-year note 2.351%
★ 02-year note 1.782%
★ 10-year − 2-year 0.569%
The yield spread between the 10-year and 2-year notes has been shrinking dramatically.
The most recent bottom was 0.53% on December 6.
If you overlay the yield spread for the 10-year minus 2-year (red, right axis) with the USD/JPY rate (blue, left axis), it looks like the following.
Source) Created by the administrator from Bloomberg
As a trend, when the yield spread narrows, the yen tends to appreciate; when the yield spread widens, the yen tends to depreciate.
Due to the Fed’s FOMC decision on December 13 to raise the federal funds rate by 0.25%, the short-term bond yields up to maturity have risen, but the 10-year yield has struggled to break above 2.4%.
As a result, the gap between the 2-year and 10-year yields is narrowing.
If this were to reverse into an inverted yield curve, it would be very serious.
That would imply a high likelihood of the United States entering a recession (economic downturn).
From the perspective of the past year, a yen appreciation to around 100 yen/USD would not be surprising.
Given that the degree of steepening of the 10-year minus 2-year yield spread is limited, I also believe the yen depreciation against the dollar would be limited.
Therefore, for the Nikkei 225 to continue rising, an increase in forecasted EPS is necessary; if the benefit of yen depreciation cannot be realized, then earnings growth will need to come from productivity improvements and cost reductions.
Note) The above reflects my personal views and is intended solely to increase financial literacy. Therefore, it was not created for investment solicitation. The final investment decisions must be made at your own risk.
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