- USD/JPY has been under intense selling pressure on Thursday and has fallen to a two-week low.
- Risk-off sentiment benefits safe-haven JPY and puts pressure amid falling US bond yields.
- Expectations for an aggressive Fed rate hike continue to benefit the USD and could offer support to the pair.
The pair USD/JPY has seen aggressive selling at the start of the European session on Thursday and has sunk to a two-week low at 128.40. At time of writing, the pair recovers slightly and trades at 128.65, still down more than -1% on the day.
A combination of factors put heavy pressure on the USD/JPY pair for the second day in a row on Thursday and dragged the pair even further from two-decade highs hit earlier this week. The prevailing feeling of risk aversion, represented by prolonged selling in the stock markets, boosted the demand for the Japanese yen as a safe haven. This along with a further decline in US Treasury bond yields.further inspired the bears and put downward pressure on the USD/JPY pair.
Annual US CPI data suggested that inflationary pressures in the world’s largest economy are peaking. This, coupled with the influx of risk-off money, dragged the benchmark 10-year US government bond yield to a two-week low. Apart of this, a technical sell below the 100-period SMA support around 129.00 was seen as another factor contributing to the pair’s decline USD/JPY. A further slide below the 129.00 level could already have set the stage for further losses.
Having said that, the underlying bullish sentiment around the US dollar could give some support to the USD/JPY pair and cap the current corrective decline. Headline and core CPI in the US were strong enough to reinforce market expectations of a more aggressive tightening of monetary policy by the Fed. In fact, money market futures are pricing at 81 % the possibility of a large rate hike of 75 basis points in June. This should continue to act as a tailwind for USD/JPY. amid wide divergence in policy outlook between Fed and Bank of Japan.
USD/JPY technical levels
Source: Fx Street
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