USD/JPY’s recent gains have been driven by the US Dollar due to “Higher (US) bond yields” which are highly correlated to USD, according to Westpac’s Pat Bustamante in his Friday morning report. 

“The 2-year bond yield increased 3 basis points to 4.74%. The 10-year treasury yield increased 4 basis points to 4.26%,” says the Senior Economist, putting the gains down to, “some hawkish talk from a Fed official.”

The Fed official in question was Federal Reserve’s (Fed) Bank of Richmond President Tom Barkin, who urged patience as Fed rate cuts would “hit in time” but that the Fed needed “clearer inflation signals before a rate cut,” and reiterated that the bank would be taking a data-dependent approach. 

According to Westpac’s Bustamente, “Interest-rate markets are pricing in just under two 25 basis points rate cuts this year, one in November and the other in December.” 

The estimate is something of a backwards step from previous expectations that the Fed would make a cut in September as was the case immediately after US Retail Sales bombed earlier in the week.