USD/JPY extends rally and hits 20-year highs above 126.50

• USD/JPY extends its recent rally during the European session on Friday and reaches its highest level in 20 years.
• The increase in US yields and the divergence of the hunting policies between the Fed and the BoJ support the upward movement of the pair.
• Little volume and movement is expected on Good Friday.

The pair USD/JPY moves higher during the European session on Friday, extending its recent rise and reaching its highest level since May 2002 at 126.68. At time of writing, the pair is pulling back slightly from the highs and is holding around the 126.50 level.

The steady rise in US bond yields has benefited the dollar and has given an additional boost to the USD/JPY pair. The benchmark 10-year yield rose above the 2.80% level on Thursday.

Even a cautious market sentimentshown by the pullback in the main US stock indices on Thursday, does not seem to benefit the safe-haven JPY.

The increased divergence in monetary policy between the Fed and the Bank of Japan seems to be giving additional wings to the pair’s rise. It is worth remembering that the Federal Reserve increased its rate by 25 basis points at its last meeting and the possibility that it will raise rates by 50 basis points in its next two meetings. On the other hand, the BoJ maintains its ultra-loose stance to support the economy.

For the rest of the day not much movement is expected in the currency markets, with the release of the New York Empire State Manufacturing Index and US industrial production data highlighting today’s Good Friday economic calendar. Due to today’s holiday, little movement and volume is expected in the markets.

USD/JPY technical levels