USD/JPY is currently trading at 120.12 with offers at 120.20 having stalled the morning rally. The latest surge in USD/JPY above 120.00 was aided not only by the cross demand by a rise in US bond yields in response to the stock market rally. US ten-year bond yields rose to 4.638%, up from 4.62% this morning.
The two-year yield spread of US bonds over JGBs remains range bound however, with the spread at 379 bp and within the range of 365-395 bp that has contained the spread in recent sessions. The inability of the yield spread to rise above 400 bp, a key psychological level, is one factor seen hampering recent USD/JPY attempts to sustain gains above 120.00. Japanese investors prefer to buy USD/JPY at lower levels, with bids seen staggered from 119.50 down to 119.00. USD/JPY offers remain at 120.50.
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