Yen descent continues
The Japanese yen can’t seem to buy a break. USD/JPY has jumped 0.84% today and has surged 2.22% this week. The pair is currently trading at 133.76, yet another 20-year high.
The yen has mustered just one winning session in the past nine, but there hasn’t been any response from Japanese officials, either at the Bank of Japan or at the Ministry of Finance (MOF). What is notable about today’s losses is that US Treasury yields are lower and yet USD/JPY has still rallied. That could rattle Tokyo and result in some comments about officials expressing concern about the exchange rate, the type of empty rhetoric which we have seen before.
Earlier in the week, BoJ Governor Kuroda said that monetary tightening was not suitable and that the BoJ intended to maintain its ultra-loose policy. Japan’s economy remains fragile, and with inflation rising but still below the Bank’s inflation target of 2%, Kuroda can afford to continue this policy. The cost has been a rapidly descending yen, but Kuroda has stated on more than one occasion that a weak yen is mostly positive for the economy. As the yen continues to fall, speculators are likely to join the party and bet against the yen until the BoJ or MOF intervene to bolster the currency, but so far there is no sign of that happening. Unless US yields make a sharp U-turn lower, the risk of the Japanese yen remains tilted downwards.
The yen is also under strong pressure from the euro. EUR/JPY has fallen for 10 consecutive trading sessions and has touched a seven-year high. The ECB is expected to end its QE programme this month and embark on a rate-hike cycle in July. This would leave the Bank of Japan as the only major central bank that has not joined the tightening bandwagon.
- USD/JPY is testing resistance at 133.68. Above, there is resistance at 1.3638
- There is support at 132.26 and 131.24
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