Are end-of-fiscal-year flows distorting normal yen-US yield patterns?

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End-of-Fiscal-Year Flows May Be Distorting Yen-US Yield Patterns

The yen's recent movements, particularly its rally on Tuesday, appear to be deviating from typical correlations with US Treasury yields. This suggests that flows associated with the end of the Japanese fiscal year might be exerting a disproportionate influence on the currency's performance. Normally, a rise in US Treasury yields would strengthen the dollar against the yen, but this pattern has not been consistently observed.
Yen Volatility Ahead of Fiscal Year-End

The Japanese yen experienced significant volatility in the period leading up to the end of the fiscal year on Friday. This volatility was notable as the currency did not always move in the expected direction relative to US Treasury yields. For instance, on the day prior to Tuesday's rally, the yen had weakened, moving counterintuitively with long-term US Treasury yields.
Influence of "Must-Do Flows"

Analysts suggest that these atypical movements could be attributed to "must-do flows" that are characteristic of fiscal year-end periods. These are transactions that financial institutions or corporations are obligated to complete by a certain deadline, regardless of prevailing market conditions. Such mandated flows can override typical trading behaviours and create temporary distortions in currency markets.
Dollar's Performance Amidst Market Stability

The US dollar itself showed signs of struggling for stability, trading marginally higher after two days of losses. This occurred as global financial markets found some equilibrium on hopes that a widespread banking crisis could be contained. The dollar index, which measures its strength against a basket of major currencies, saw a modest increase, despite a concurrent rise in US Treasury yields. This divergence further highlights the unusual market dynamics at play.

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Are end-of-fiscal-year flows distorting normal yen-US yield patterns?

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