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The Dollar/Yen spiked higher early Monday on hopes a U.S.-North Korean summit was back on track, but the low volume because of the U.S. bank holiday, likely limited gains.
The USD/JPY settled on Monday at 109.418, up 0.033 or +0.03%.
More North Korean Sanctions in the Works?
While U.S. and North Korean delegates scrambled to put the meeting back on track, The Wall Street Journal reported on Monday that the U.S. is prepared to unveil tough new sanctions on North Korea as soon as Tuesday, but could hold off as the countries try to revive the meeting, tentatively scheduled for June 12.
The Wall Street Journal, citing two administration officials, said the Treasury Department had assembled sanctions that would take aim at about three-dozen targets, including Russian and Chinese entities.
Political Turmoil Driving Safe Haven Demand
The Dollar/Yen is trading lower early Tuesday. Traders are likely reacting to the political turmoil in Italy and concerns over North Korea. At 0229 GMT, the USD/JPY is at 108.995, down 0.423 or -0.39%.
Short-term interest rates in Italy are soaring and the bond market is on the brink of massive liquidation according to some experts. Investors are also taking a grim view of Italy seemingly heading towards another election.
According to CNBC, Italian bond have witnessed one of their worst trading weeks since the Euro Zone sovereign debt crisis, with many traders getting a stark reminder of the volatility that once characterized markets in the region.
On Friday, two-year Italian bond yields rose 35 basis points in one-day – almost equivalent to the entire range of the year for U.S. 10-year Treasurys. This was the weakest session in five years and continued a month that’s seen these yields rise 70 basis points in total.
The spike in yields has investors concerned enough to seek safety in the Japanese Yen. Investors are concerned about lending to Italy’s government. Investors could continue to move money into the Yen especially since foreign investors own about 37 percent of the outstanding Italian bonds.
The USD/JPY could drop even further this week if the rating services decide to downgrade Italian bonds.
This article was originally posted on FX Empire