The Japanese yen recorded another losing week, a seventh straight if you’re counting. USD/JPY is slightly lower at the start of the week, trading at 128.26 in the European session.
The Bank of Japan meets on Thursday, but the central bank is keeping busy as it has intervened to cap JGB yields. The Bank has offered to purchase an unlimited amount of 10-year bonds at 0.25%. This is the third time since February that the BoJ has stepped in to defend its ultra-loose yield target. As we’ve seen in recent weeks, any pause in the yen’s slide has been temporary, as the currency trades close to 20-year lows, with the symbolic 130 line lurking close by.
USD/JPY risk remains heavily tilted higher, primarily because of the Federal Reserve, whose hawkishness has widened the US/Japan rate differential, which has sent the yen tumbling. On Thursday, Fed Governor Powell reiterated that a 0.50% hike is on the table for the May meeting, with possibly additional 0.50% increases. Fed member Mester said on Friday that she favors a 0.50% increase in May and “a few more” in order to boost the fed funds rate to 2.5% by the end of the year. The Fed is sending clear signals that it plans to move quickly on rate hikes, which is not surprising, given that US inflation is red-hot, hitting 8.5% in March.
The BoJ appears willing to let the yen fall, at least for now, if that is the price to maintain its ultra-loose monetary policy. We won’t see a shift in policy at the Thursday meeting, although it could tweak guidance in order to help out the ailing yen. Still, with inflation well below the 2% target and the economy limping along, the Bank is determined to persist with its monetary easing, with yield curve control a key element in its policy.
- There is resistance at 1.2989, followed by 130.93, which is a monthly line
- USD/JPY has support at 1.2674 and 1.2492
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