- The widening of the yield spread between the US and Japan, and a rally in the market weakened the yen.
- The dollar is also weak in the market at the start of the Fed’s week.
- USD/JPY bounces back after last week’s slump but to a limited extent.
The pair USD/JPY is rising on Monday, recovering after falling as low as 135.55 last week. The dollar is paring a small part of recent losses and rose as high as 136.74 but could not be confirmed above 136.50.
The dollar and yen are among the worst performing currencies on modest gains in stocks and sovereign bond yields. The beginning of the week is given with limited routes and with the operators looking at the Federal Reserve.
The spread between Japanese and US bond yields remains key to sustaining USD/JPY, which after last week’s sharp downward correction is looking to recover. This comes amid bets that the fed it would raise interest rates by another 75 basis points at the end of a two-day meeting on Wednesday. On the contrary, the Bank of Japan last week it maintained its expansive policy and reiterated its commitment to continue buying Japanese public bonds, in order to keep the yield curve under control.
The wide divergence in the monetary policy stance adopted by the two main central banks favors the rises and supports the prospects for further appreciation in the short term of the USD/JPY pair. Therefore, any significant pullback could be seen as a buying opportunity and are more likely to be short-lived ahead of key event risk from central banks. This scenario could prevail until an end to the Fed’s bullish cycle or that of the BoJ’s ultra-expansive policy begins to be seen.
Technical levels
Source: Fx Street
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