USD/JPY climbs past 155 as yields hit 2007 high

The dollar-yen pair climbed back above 155.00, reaching a one-week high, as bond market movements continued to steer broader market action at the start of the week.

Ten-year Treasury yields rose to 5.03 percent, the highest since 2007, as the global bond selloff accelerated. Yields on German and French government bonds also moved higher, indicating the trend is not limited to the United States.

Concerns about inflation have returned to the forefront, driven by rising oil prices amid geopolitical tensions. Consequently, traders are now almost fully pricing in a 25-basis-point rate increase from the Federal Reserve at its Wednesday meeting.

This combination has supported the dollar, a trend seen since Monday, and traders are now looking for another significant chart breakout.

From early September, the so-called Bessent put had pushed the dollar-yen pair lower, followed by a period of consolidation under 155 last week. However, traders are becoming nervous again as the dominant macroeconomic narrative begins to take over market sentiment.

The return above 155 for USD/JPY is noteworthy, but the pair’s future direction will hinge more on the Fed’s forward guidance than on the expected rate hike itself.

This is where bond markets continue to play a crucial role.

Should the Fed signal that inflation is still a concern and leave room for additional tightening, Treasury yields may remain high, further supporting USD/JPY.

Investors are already looking past Wednesday, with expectations growing that the September rate increase might not be a one-off.

Heading into the Fed decision, USD/JPY might be trading above 155. But the behavior of 10-year Treasury yields is likely the more critical factor to monitor.