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USD/JPY extends post-BoJ rally and rises to fresh two-decade highs near 131.00

  • USD/JPY captures aggressive buying on Thursday after the BoJ stuck to its ultra-bearish stance.
  • Prospects for faster rate hikes by the Fed continue to buoy the USD and support the pair’s move higher.
  • Strong momentum carries USD/JPY above the key psychological barrier of 130.00.

The pair USD/JPY has continued to move higher during the first half of the European session on Thursday and has risen near the 131.00 level, to a new two-decade high. At time of writing, the pair pulls back slightly to 130.59, still up 1.68% on the day.

The pair has built on the previous day’s nice bounce from below the 127.00 level and has gained strong continuation traction for the second day in a row on Thursday. The strong uptick came after the Bank of Japan announced its monetary policy decision and reaffirmed its dovish stance.

In fact, the Japanese central bank has decided to maintain its ultra-loose monetary policy setup and promises to hold daily trades to defend its “near-zero” target on 10-year bond yields. The BoJ believes that Japan’s underlying economy is too fragile to tighten monetary policy. At the post-meeting press conference, BoJ Governor Haruhiko Kuroda said that downside risks to the economy for the time being and showed a willingness to further ease monetary policy if necessary. This, coupled with the boost in risk appetite, weighs heavily on the safe-haven Japanese yen.

On the other hand, US dollar rose to a five-year high and remained supported by prospects for a faster Fed tightening. This reflects the wide monetary policy divergence between the Fed and the BoJ and pushed the USD/JPY pair above the key psychological barrier near 130.00. Therefore, the strong move higher could be further attributed to some technical buying above the 130.00 level. That said, speculation that the recent free fall in the JPY could prompt verbal intervention from the BoJ prevents the bulls from opening new aggressive positions amid extreme overbought conditions.

Market participants now await the US economic calendar, highlighted by the release of preliminary Q1 GDP report and the usual initial jobless claims. These data could weigh on the USD, which along with broader risk sentiment should provide some lift to the USD/JPY pair.

USD/JPY technical levels

Source: Fx Street

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