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The Yen affair

The Japanese Yen has come back above 160 per dollar (white line). After two interventions where the Minister of Finance supposedly spent $55Bn to defend the currency rapid depreciation vs the USD, it seems its weakening is unstoppable. On top of that, the 10 yr JGB (red line) is also falling in price (up in yield), after Yied Curve Control policy failed, and the yield more than doubled YTD. But whats interesting about the chart below is the blue line, which represents the yield difference between the 10 year US treasury bond and the 10 year JGB. Notice that until the first intervention, the three lines where moving in sync. After interventions, the U.S. treasury yield decoupled, and stopped going up, which perhaps indicate that whatever link existed between both central banks and Institutional investors, has disappeared. Is that an indication that this has become a predominantly domestic affair? Why aren’t arbitragers putting money behind a more attractive Japanese yield?

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