Japanese yen starts week in calm waters

The Japanese yen was almost unchanged last week and the lack of activity has continued in the Monday session. Currently, USD/JPY is trading at 109.61, down 0.06% on the day.

Will US yields push yen above 110? 

USD/JPY has stabilized but remains within striking distance of the 110 line, which has held since March 2o20. The pair traded at 109.80 earlier in the day and appears poised to punch above this psychologically important line. The US dollar continues to receive support from higher US yields, and the yen is particularly sensitive to rate differentials between the two countries.

The Bank of Japan addressed the recent movement in bond yields at its policy meeting earlier in March, when it abolished the target of annual purchases of ETFs in the amount of 6 trillion yen. The BoJ also said it would allow 10-year government bonds to move within a band of plus/minus 0.25% from zero percent, in order to discourage speculators. At Monday’s summary of opinions, one member warned that it was important for the bank to “avoid a misunderstanding that the bank has adopted a less accommodative stance on monetary policy.” With inflation levels remaining well below the BoJ’s target of 2 per cent, the risk of deflation remains high, and the bank is at pains to point out to the market that it has no plans to tighten monetary policy.

Japanese consumers are in a sour mood and have been holding tight to the purse strings. Retail Sales fell 2.7% in January and analysts are braced for a decline of 2.7% in the February release (11:50 GMT). A steeper decline than the estimate could weigh on the Japanese yen.

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USD/JPY Technical Analysis

• On the downside, there is support at 108.78. Below, there is support at 107.87
• There is resistance at 110.22, followed by resistance at 110.75

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