- USD/JPY rose to the highest level since May 2002 during early trading on Wednesday.
- The divergent monetary policy stance of the Fed and the BoJ weighed heavily on the JPY and acted as a tailwind.
- Overbought conditions on intraday charts capped the upside amid concerns over the Ukraine crisis.
The pair USD/JPY it fell back more than 50 pips from a two-decade high hit earlier this Wednesday and was last seen trading below the 126.00 mark, up around 0.40% per day.
The Japanese yen weakened across the board and fell to its lowest level since May 2002 against the US dollar amid growing policy divergence between the Bank of Japan and the Federal Reserve. Indeed, BoJ Governor Haruhiko Kuroda emphasized the need to maintain the current powerful monetary easing to support an economy that has yet to recover to pre-pandemic levels.
On the other hand, comments on Tuesday from Fed Governor Lael Brainard reaffirmed market bets that the Fed will tighten monetary policy at a faster pace to curb runaway inflation. In an interview with the Wall Street Journal, Brainard stressed that the central bank will proceed with a series of interest rate hikes as well as an effort to trim its balance sheet.
This, in turn, helped the USD/JPY pair catch aggressive bids on Wednesday and break above the 125.75-85 resistance zone (YTD/June 2015 high). The momentum pushed the USD/JPY pair past the 126.00 mark, although the overbought RSI on intraday charts kept a cap on any further gains amid hopes for a diplomatic solution to end the war in Ukraine.
In the latest developments, Russian President Vladimir Putin said on Tuesday that talks with Ukraine are at an impasse. Putin further added that Ukraine has deviated from the agreements reached in the talks in Istanbul. However, the fundamental backdrop appears to be tilted in favor of bullish traders and supports the prospects for an extension of the recent strong move higher.
Regarding US data, the US Producer Price Index rose 1.4% in March, more than the 1.1% market consensus and higher than February’s 0.9% (revised from 0.8%) . The annual rate went from 10% to 11.2%, exceeding the expected 10.6%. It is the largest rise since the series exists (November 2010). This coupled with US bond yields will influence USD price dynamics and provide a further boost to the USD/JPY pair. Traders will take more cues from the broader risk sentiment to take advantage of some short-term opportunities.
Technical levels
Source: Fx Street
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