- USD/JPY rises for the fourth day in a row and soars to a new two-decade high.
- The monetary policy divergence between the Fed and the Bank of Japan continues to pull money flows away from the Japanese yen.
- Overbought conditions warrant some caution from bulls ahead of Friday’s US CPI.
The pair USD/JPY extends its recent bullish trajectory of the past two weeks and gains strong continuation traction for the fourth day in a row on Wednesday. This also marks the seventh day of positive movement in the previous eight and boosts the pair. to its highest level since March 2002, around the region of 133.85 during the first half of the European session on Wednesday.
The wide divergence in the monetary policy stance adopted by the Bank of Japan (pessimistic) and the Fed (aggressive) was seen as a key factor in the Japanese yen’s underperformance since early 2022. Indeed, Bank of Japan Governor Haruhiko Kuroda reiterated on Wednesday that the central bank should continue to support economic activity by maintaining its current ultra-loose policy setting. In addition, the Bank of Japan has also promised carry out unlimited bond purchase operations to defend his near-zero target for 10-year yields.
By contrast, the benchmark 10-year US government bond yield climbed back above 3.0%, edging closer to a nearly four-week high hit earlier this week, amid concerns over persistent inflation. Investors remain concerned that the global supply chain disruption caused by the Russian-Ukrainian war continues to drive up consumer prices. This could force the Federal Reserve to tighten its monetary policy at a faster pacewhich, in turn, helped revive demand for the US dollar and acted as a tailwind for the USD/JPY pair.
Apart from the factors mentioned, the strong upward movement could also be attributed to technical buying following a convincing break of the double top resistance at 131.25-131.35 earlier this week. That said, the overbought conditions on the short-term charts warrant some caution before positioning for any further moves higher. In addition, investors may prefer to stay on the sidelines pending Friday’s US consumer inflation figures, which will determine the Fed’s tightening path. This, in turn, will influence the price dynamics of the dollar in the short term and will provide a new directional boost to the USD/JPY pair.
USD/JPY technical levels
Source: Fx Street
With 6 years of experience, I bring to the table captivating and informative writing in the world news category. My expertise covers a range of industries, including tourism, technology, forex and stocks. From brief social media posts to in-depth articles, I am dedicated to creating compelling content for various platforms.
