Japanese Yen First Quarter Recap
The anti-risk Japanese Yen[1] put in a dismal performance during the first quarter of 2022, particularly as March wrapped up. A majors-based Japanese Yen Index that averages JPY against USD[2], AUD[3], GBP[4] and EUR[5] fell as the S&P 500[6] and 10-year Treasury yield climbed.
Stocks and bond yields rising in tandem can make it difficult for the Japanese currency to shine. Russia’s attack on Ukraine and a more hawkish Federal Reserve have been unable to break market sentiment in a lasting way, at least for now. Is more pain in store for JPY ahead?
How Hawkish Will the Fed Be?
At face value, it seems more of the same could remain in store for the Yen in the second quarter. One of the leading causes of JPY weakness likely stems from increasing monetary policy divergence between the Bank of Japan and its major counterparts. Aside from the Swiss National Bank, the BOJ remains one of the most dovish G10 central banks.
Global government bond yields continued their ascent in the first quarter. Looking at Treasury rates, the 2-year surged from 0.75% to above 2.15%. The 10-year started around 1.53% and closed in on 2.4% as March was wrapping up. A more hawkish Fed was a key culprit, with policymakers leaving the door open to hiking rates in 50bps increments to bring price growth to heel. The odds of such a move by May has jumped to a commanding 75% towards the end of March.
Japanese Yen Fundamental Drivers
Chart Created Using TradingView
Will Japanese CPI Surpass 2% in the Second Quarter?
Central banks have been responding to rising global inflation, which seems
