- USD/JPY regains strong positive traction on Monday and rises near the 125.00 level.
- JPY witnesses strong selling after BoJ offered to buy unlimited 10-year JGB.
- Aggressive expectations from the Fed benefit the USD and continue to support the pair’s strong upward move.
The pair USD/JPY has continued to move higher during the first half of the European session on Monday, breaking above the key psychological level of 125.00 for the first time since August 2015.
Following Friday’s modest pullback, USD/JPY caught fresh aggressive buying on Monday after the Bank of Japan (BoJ) intervened to stop the continued rise in yields. In fact, the BoJ made two offers in a single day to buy unlimited amounts of 10-year Japanese government bonds (JGBs) to protect the 0.25% tolerance ceiling under its yield curve control policy.
Conversely, Benchmark 10-year US government bond yield soared to nearly three-year highbeyond 2.5% amid expectations of a more aggressive response from the Fed. This led to a further widening of the bond yield spread between the United States and Japanwhich coupled with a positive tone around equity markets, pulled money flows away from the safe-haven Japanese yen.
In fact, the markets have been pricing in a 50 basis point Fed rate hike move at May meeting amid concerns that rising commodity prices would put upward pressure on already high inflation. This, in turn, continued to support some buying around the US dollar, which provided additional momentum to the USD/JPY pair and took some stop orders placed near the 124.00 level.
Therefore, the last leg of the move higher in the last hour could be attributed to some technical buying. This warrants some caution before opening new bullish positions amid extremely overbought conditions. In the absence of any relevant economic data releases, US bond yields, price action around the dollar and broader risk sentiment should provide some lift to the USD/JPY pair.
USD/JPY technical levels
Source: Fx Street
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