- USD/JPY achieves strong positive traction on Friday after the Bank of Japan’s monetary policy update.
- The US-Japan rate spread and risk appetite are weighing on the safe-haven yen.
- The appearance of new purchases around the USD provides an additional boost to the pair.
The pair USD/JPY moves steadily higher and snaps a two-day losing streak to hit a nearly two-week low, further halting this week’s pullback from a 24-year high. The pair maintains its strong intraday gains during the early part of the European session on Friday. At time of writing, the pair trades at 134.78, up nearly 2% on the day.
The Japanese yen weakened across the board after the Bank of Japan decided to leave its monetary policy unchanged and reiterate its guidance to keep borrowing costs at “current or lower” levels. The Japanese central bank also promised to guide the 10-year government bond yield around 0%, which caused a further widening of the interest rate differential between Japan and the US. and acted as a tailwind for the USD/JPY pair.
It should be remembered that The Federal Reserve raised interest rates by 75 basis points on Wednesday., the largest rise since 1994, and indicated a faster policy tightening path to control price pressures. Furthermore, the so-called dot plot showed that the year-end median projection for the fed funds rate rose to 3.4% from the 1.9% estimate in March and to 3.8% in 2023. This, in turn, contributed revive demand for the US dollar.
Apart of this, a good rally in stock markets weighed on the yen and was considered as another factor that contributed to the strong intraday rise of the USD/JPY pair of more than 250 pips. That said, the current drop in US Treasury yields could cap dollar gains. Investors were comforted by the Fed’s view that the interest rate could fall to 3.4% in 2024 and 2.5% in the long term, which in turn dragged US bond yields lower.
However, the USD/JPY pair has rallied back to the previous day’s highs and some continuation buying would set the stage for a retracement to the psychological 135.00 level. Market participants now await the US economic calendar, with the release of industrial production data and the capacity utilization rate. Additionally, US bond yields, dollar price dynamics and market risk sentiment could boost the USD/JPY pair.
USD/JPY technical levels
Source: Fx Street
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