CHART OF THE DAY: This Is The Relationship That Determines The Crucial Dollar-Yen Exchange Rate

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The dollar-yen exchange rate (USDJPY) may be the most-followed currency pairs there is.

So what’s the real determiner of where it goes?

Readers Ravi Bharadwaj and David Boudreau sent us this, which plots the historical rate against the spread between US 10-year bonds and 10-year Japanese government bonds.

Not surprisingly, when the US 10-year yields more, the value of the dollar goes up. Obviously it’s not an iron-clad relationship (there’s plenty of swinging around the mid-point), but the trend is pretty clear.

chart of the day, usd/jpy rate, oct 2010

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