- Rising international yields (vs. Japan) and more dovish comments from the BoJ are hitting the yen hard on Tuesday.
- USD/JPY hit multi-year highs above 121.00 before pulling back a bit, with gains for the month close to 5.0%.
The JPY continues to suffer from a bearish mix of dovish BoJ rhetoric and rising yields and is the worst performing G10 currency on Tuesday by a substantial margin. After Bank of Japan Governor Haruhiko Kuroda reiterated on Tuesday that it remains premature to exit his extremely accommodative monetary stance and US 10-year bond yields rose to new multi-year highs above 2.35% ( now almost 20 bp in the week and 50 bp in the month), the USD/JPY it was boosted to its highest level since February 2016 above 121.00.
Since then, the pair has pulled back to just above 120.50, but is still trading daily gains of around 0.9%, taking its monthly gains to almost 5.0%. The main driver of the rally in yields that has pushed USD/JPY to multi-year highs has been the Fed’s aggressive change in policy stance. In the wake of the central bank’s policy announcement last Wednesday and Fed Chairman Jerome Powell’s speech on Monday, markets are increasing their bets that 1) The Fed will move faster and 2) That the Fed will raise rates above the so-called “neutral” (2.0-2.5%)
The extent of the move higher in USD/JPY has some traders concerned that conditions are turning overbought; in fact, the pair’s 14-session Relative Strength Index (RIS) reached 82.5 on Tuesday, well above the 70 level that indicates overbought. That is its highest level since 2016. While it is true that some consolidation/technical correction might be needed if US yields continue the recent upward momentum, downside will remain very attractive. Later in the day, traders will be watching for comments from some Fed members ahead of Powell’s speech on Wednesday.
Technical levels
Source: Fx Street
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