USD/JPY: Correlation of DXY vs US10Y

Jasper Osita - Market Analyst

2025-08-05 11:18:26

In our previous guide, USD/JPY: How to Trade the Fastest Moving Forex Pair with Precision, we laid out the roadmap for trading one of the most dynamic pairs in forex. From Tokyo session sweeps to yield-driven momentum bursts, USD/JPY revealed itself to be less about noise and more about narrative.

But there’s one question traders keep asking after mastering the basics:

Should I correlate USD/JPY with DXY or the U.S. 10-Year Yield?

Let’s put that question to rest once and for all.

Recap: Why USD/JPY Moves the Way It Does

As we covered previously, USD/JPY responds to:

Interest rate differentials between the U.S. and Japan
Risk-on vs risk-off sentiment
Verbal or actual BoJ interventions
Macro events like CPI, NFP, or Fed decisions

But there’s one force that consistently moves USD/JPY with almost surgical precision: the U.S. 10-Year Treasury Yield (US10Y).

Why Most Traders Default to DXY - and Why That’s a Problem

It’s natural to use the Dollar Index as a guide. After all, it tracks the strength of the U.S. dollar. But here’s the catch most don’t realize:

DXY is made up of six currencies
The euro makes up 57.6% of the index
The yen accounts for only 13.6%

That means DXY mostly reflects EUR/USD behavior. So if EUR is rising due to European data, DXY might fall, even while USD/JPY is rising.

You end up following the wrong signal, missing setups, or worse, taking the opposite side.

US10Y: The Real Driver of USD/JPY

USD/JPY is incredibly sensitive to interest rate differentials, specifically the gap between U.S. and Japanese bond yields.

Unlike DXY, the U.S. 10-Year Treasury Yield (US10Y) offers a direct lens into what’s moving USD/JPY. Here's why:

USD/JPY is highly sensitive to interest rate differentials
US10Y reflects inflation, growth, and Fed expectations
When yields rise, investors buy dollars, pushing USD/JPY higher
When yields fall, money flows to safer assets like the yen, and USD/JPY drops

This isn’t just correlation - it’s mechanical causation.

Comparing Bananas to Apples

Tracking USD/JPY with DXY is like watching the euro to forecast the yen.

It can work in short bursts, but over time, it leads you down the wrong path.

Tracking yields, on the other hand, puts your finger on the real market lever.

When to Use DXY vs US10Y

Situation	Use DXY	Use US10Y
Trading EUR/USD or GBP/USD	✅
Trading USD/JPY intraday or swing		✅
Assessing broad USD strength	✅	✅
Identifying misalignment or divergence	✅	✅

Use DXY for sentiment, but use US10Y for precision when trading USD/JPY.

How to Overlay It All in One Chart

Open USD/JPY on TradingView
Add US10Y using the “Compare” feature
Add DXY as a second overlay
Watch how USD/JPY shadows yields, not the index
During CPI, NFP, or Fed announcements, observe which leads and which lags

The pattern becomes clear. Yields lead. USD/JPY follows. DXY reacts.

Real-Life Analogy: The Wrong Forecast

Using DXY to trade USD/JPY is like dressing for the weather based on someone else's city.

Using US10Y is like stepping outside and feeling the air yourself. It’s live, local, and accurate.

Challenge for the Week

This week, before entering any USD/JPY trade:

Check the US10Y chart
Note whether yields are rising, falling, or ranging
Align your directional bias accordingly
Only take setups when your technical entry model (MSS, FVG, OB) aligns with the bond market’s message

Then compare what DXY is doing. You’ll spot the difference, and gain the edge.

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This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplies by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.

מחבר

Jasper has been in the markets since 2019 trading currencies, indices and commodities like Gold. His approach in the market is heavily accompanied by technical analysis and of course, supported by fundamentals. He has a background in trading proprietary firms and has been teaching students how to navigate themselves in the markets from basic to advance concepts.

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המחירים הינם אינדיקטיביים בלבד

USD/JPY: Correlation of DXY vs US10Y

Recap: Why USD/JPY Moves the Way It Does

Why Most Traders Default to DXY - and Why That’s a Problem

US10Y: The Real Driver of USD/JPY

Comparing Bananas to Apples

When to Use DXY vs US10Y

How to Overlay It All in One Chart

Real-Life Analogy: The Wrong Forecast

Challenge for the Week

Start Practicing with Confidence - Risk-Free!

Check Out My Contents:

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