USD/JPY rebounds as bond yields surge amid market whiplash

Markets continued their wild ride on Monday, with some of the most dramatic price swings in over a decade. What began as a deepening selloff quickly flipped into a rally—then back again—after a false report suggested the White House might delay tariffs to allow for negotiations.

The fake headline was quickly denied by the administration, but not before it wreaked havoc on sentiment. The Nasdaq 100 opened down 4.5%, surged 9.4% on the false story, and then dropped another 6.2% following the denial.

Yields Spike on False Optimism

The chaos also rippled through the bond market. As the fake news circulated, investors began dumping Treasuries—a hedge they had piled into in recent weeks. The result: U.S. 10-year yields surged over 5%, marking their biggest daily rise since September 2022.

This move may signal that a short-term bottom in yields has been reached. If this holds, yields could remain above 3.9% in the near term, supporting a stronger dollar.

US 10-year yield daily chart

Past performance is not a reliable indicator of future results.

USD/JPY Climbs as Risk Sentiment Stabilizes

The bounce in bond yields, along with a tentative return of risk appetite, helped USD/JPY recover ground. The pair moved back toward the top of its descending channel on Monday, though it has yet to break decisively above it.

Adding to the upside momentum: reports that Treasury Secretary Scott Bessent will lead trade talks with Japan. The fact that the Treasury—not a trade representative—is handling negotiations has raised speculation that currency dynamics will be central to discussions, particularly around the yen's persistent weakness.

USD/JPY remains highly sensitive to U.S. interest rate expectations. While macro data and central bank communication are temporarily taking a backseat, market pricing for the next Fed meeting in May remains fluid.

Earlier Monday: 60% chance of a 25bps rate cut

Later in the day (after the yield surge): 65% chance of no change

Higher US treasury yields usually mean upside risks for USD/JPY so if yields continue rising, USD/JPY could push higher and attempt a breakout above the descending channel. However, resistance near the 148 level has held firm so far, with two daily rejections reinforcing that zone.

USD/JPY daily chart

Past performance is not a reliable indicator of future results.

Key Takeaway

Monday’s extreme volatility highlights just how headline-driven markets have become. For USD/JPY, the near-term direction hinges on bond yield dynamics, Fed rate expectations, and any signals from U.S.-Japan trade talks. If yields stay elevated and risk appetite stabilizes, the pair may test higher levels in the coming sessions—though resistance at 148 remains a critical barrier.