So on Sunday, in our week ahead preview, we noted that Thursday would bring a number of potential land mines and that, as usual, FX would be the transmission mechanism for markets.

We’re getting a taste of that on Tuesday as the yen tops the G-10 leader board, rising to a six-week high against the stumbling dollar and tracking declines in Treasury yields.

Here’s a bit of useful color on this from SocGen’s Kit Juckes:

The correlation between USD/JPY and US Treasury yields remains stupidly strong. The causation seems clear enough – the BOJ is anchoring Japanese yields and the relative appeal of the yen is a function of yields overseas, encapsulated by the global bellwether. The last year can be divided into two ranges. Pre-Trump, USD/JPY traded in a 98-108 range and 10s in a 1.3- 1.8% range. Since mid-November, USD/JPY has traded in a 108-119 range, 10s in a 2.15-2.70 range. We are at the bottom of that range, in both FX and bond markets.

From here, I’d rather be short yen than short Treasuries, but I wouldn’t like to be long either. Is this week’s move caused by the soft US data on Friday 9 and soft Ism prices paid yesterday) or by risk aversion (Comey testimony, UK election, Qatar)? Both play a part, obviously, but the pound’s ignoring the polls, and glancing through equity markets and commodity market moves, there’s no evidence of wider risk aversion. Oil prices have dropped back, partly on the grounds that there are not yet any economic sanctions being imposed on Qatar. I’m more inclined to see this fall in US yields as the last leg of the rally which started when huge bearish positions were squeezed at the end of Q1. Now that we’ve see a sizeable long position build-up in CFTC data, I’m more inclined to view this latest move as the last hurrah of the bond bulls, and fade it by staying long EUR/JPY and going long USD/JPY.

We did get wage data out of Japan overnight and it’s also worth noting that an auction of 30-year JGBs drew the highest bid-to-cover since October 12.

The fallout from the Qatar drama continued as the QE Index fell as much as 2.6% at the open in Doha. “Institutional investors from the Gulf Cooperation Council were net sellers of 162.4m riyals ($44.5m) of Qatari stocks on Monday,” Bloomberg wrote this morning, adding that the total was “the most for a single session since March 16.” Here’s the rest of the breakdown:

• Individual investors from the GCC were net sellers of 39.7m riyals, the most since at least October
• Foreigners outside of the GCC sold 98.5m riyals, also the most since October
• Institutions outside of the GCC were net buyers of 58.6m riyals, the most since March

The yuan led emerging Asian FX higher as the weak dollar buoyed regional currencies. The PBOC eschewed reverse repos for MLF on Tuesday. As Bloomberg notes, “the MSCI EM Asia Index of shares was up for a fourth day [as] the Bloomberg Dollar Spot Index fell to an 8-month low.”

“The PBOC maintained its strong RMB bias through firmer CNY fixing and a stronger RMB has boosted regional sentiment,” Mizhuo’s Ken Cheung said, adding that “markets are closely watching the eventful Thursday, with the ECB meeting, U.K. election and Comey’s testimony, [as] these events would be decisive for major FX and that in turn will set the direction for EM Asia currencies.”

Needless to say, the yen strength translated into Nikkei weakness. Other Asian markets were mixed. Europe looks nervous. Here’s a snapshot:

• Nikkei down 1% to 19,979.90
• Topix down 0.8% to 1,596.44
• Hang Seng Index up 0.5% to 25,997.14
• Shanghai Composite up 0.3% to 3,102.13
• Sensex down 0.3% to 31,223.91
• Australia S&P/ASX 200 down 1.5% to 5,667.47
• Kospi down 0.1% to 2,368.62
• FTSE 7521.22 -4.54 -0.06%
• DAX 12742.42 -80.52 -0.63%
• CAC 5287.83 -20.06 -0.38%
• IBEX 35 10855.80 -28.90 -0.27%