Will Treasury Yields Send The Dollar Higher Against the Yen in Currency Trading?

Forex trading forecast for USD/JPY

Treasury yields have been moving higher, indicating that demand for notes is waning. As the economy looks for improvement and recovery from recession, "safe" investments like Treasury bonds will decline in popularity. This could mean good news for the dollar against the yen in currency trading on the FX market as risk appetite settles in.

The forex trading forecast for USD/JPY could possibly be one of strength. The Forex Blog reports on the correlation between Treasury yields and the dollar and yen in currency trading:

If the Fed limits its purchase of Treasuries, by extension, not only will this limit inflation, but also it will lead to higher interest rates on US government bonds, which should help prop up investor demand. One currency strategist observed that “The dollar-yen is very closely correlated with the back end of the yield spread.” In other words, as US long-term yields rise, so may the Dollar.

It will be interesting to see how things go in the coming months. The U.S. dollar is also receiving help today from remarks Ben Bernanke made before Congress.