Japanese yen punches past 136

After a quiet start to the week, the US dollar is again rallying against the hapless Japanese yen. USD/JPY is currently trading at 136.18, up 0.78% on the day. The yen is trading at its lowest level since September 1998.

Yen gets no help from BoJ

It shouldn’t come as a surprise that the yen continues to lose ground. The currency has been left to the (dollar) wolves by the Bank of Japan. The BoJ signalled at Friday’s meeting that it would stick to its ultra-accommodative policy, despite pressure to adjust its yield curve control. The central bank has tenaciously capped the 10-year yield on JGBs at 0.25%, intervening to keep rates from moving higher. Governor Kuroda has defended this policy as critical to support the fragile economy and push inflation higher.

The price for the BoJ’s stance is being paid by the yen, which is losing ground as the US/Japan rate differential widens. The central bank purchased a record USD 81 billion in JGBs last week, after the 10-year yield breached above 0.25%. This has pushed the yield to 0.23%, but USD/JPY surged 2.11% on Friday and continues to move higher. With the Federal Reserve in the midst of an aggressive rate-tightening cycle, USD/JPY appears headed towards the lofty 140 level.

Will Japan intervene in order to stabilize the exchange rate? The Bank of Japan and the Ministry of Finance have resorted to verbal intervention, warning that they are concerned about the rapid descent of the yen and our monitoring the situation. The jawboning has not had much effect, as the yen shows no signs of rebounding. There has been speculation that the BoJ has a ‘line in the sand’ at which it will step in and defend the yen, but USD/JPY continues to rise without hindrance. Could a 140 yen be that line in the sand?

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USD/JPY Technical

• There is resistance at 1.3657 and 1.3814
• USD/JPY has support at 1.3404 and 1.3247

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