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Forex pairs in this Article » USD/JPY (Barcelona) - According to Research Analyst Geoffrey Yu at UBS, "The lack of movement on the yield side in the US is probably what worries investors the most at this stage. Its long-term relationship to the USDJPY is well established, and with a new dose of asset purchases plus fiscal cliff battles looming, we doubt this spread is going anywhere soon."

In addition, "it's worth pointing out that the starting point for the spread during the current run, 85.5bp on September 27th, is nearly identical to the same point in Q1 of 86.65bp. In other words, the FX market has priced in a lot of US-driven good news (relative to Japan) whereas the Treasury market has not." he notes.

Even if the convergence is fixed income to FX and we get the exact move as Q1, this spread has another 33bp to make up at least. "Assuming no change in JGB yields, the USDJPY will be at 85.00 if the US 10-year yield rises above 2.0% - a level it has not touched since mid-April. We leave to markets to ponder whether this is a realistic scenario for the US." Yu adds.
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