The Japanese yen recorded another losing week, a seventh straight if you’re counting. USD/JPY was slightly lower at the start of the week, trading at 128.26 in the European session.
The Bank of Japan meets on Thursday, but the central bank was keeping busy as it intervened to cap JGB yields. The Bank offered to purchase an unlimited amount of 10-year bonds at 0.25%.
This was the third time since February that the BoJ had stepped in to defend its ultra-loose yield target. As we’ve seen in recent weeks, any pause in the yen’s slide was temporary, as the currency traded close to 20-year lows, with the symbolic 130 line lurking close by.
USD/JPY risk remained heavily tilted higher, primarily because of the Federal Reserve, whose hawkishness had widened the US/Japan rate differential, which sent the yen tumbling.
On Thursday, Fed Governor Powell reiterated that a 0.50% hike was on the table for the May meeting, with possibly additional 0.50% increases. Fed member Mester said on Friday that she favored a 0.50% increase in May and “a few more” in order to boost the fed funds rate to 2.5% by the end of the year.
The Fed was sending clear signals that it planned to move quickly on rate hikes, which was not surprising, given that US inflation was red-hot, hitting 8.5% in March.
The BoJ appeared willing to let the yen fall, at least for now, if that was the price to maintain its ultra-loose monetary policy. We won’t see a shift in policy at the Thursday meeting, although it could tweak guidance in order to help out the ailing yen.
Still, with inflation well below the 2% target and the economy limping along, the Bank was determined to persist with its monetary easing, with yield curve control a key element in its policy.
USD/JPY Technical
- There was resistance at 1.2989, followed by 130.93, which was a monthly line
- USD/JPY had support at 1.2674 and 1.2492