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USD/JPY hits 24-year high amid uncertain policy response -by Ecork

USD/JPY news and analysis

  • The Ministry of Finance’s response to sharp FX moves leaves much to be desired
  • Risk events: Japanese CPI inflation and Jerome Powell’s speech to the US Senate
  • Key technical levels for the USD/JPY to consider

MoF’s response to Sharp FX’s moves is still under study

In a statement that opened the door for an upward move in the USD/JPY, Japanese Finance Minister Suzuki stated that “the timing and sources of funding for rapid comprehensive measures to deal with price hikes have not been determined.” Suzuki’s comments add to the previous series of statements released on behalf of the Ministry of Finance as well as the Bank of Japan (BoJ), rejecting the sharp drop in the value of the yen.

Prior to last week, Bank of Japan Governor Kuroda tilted slightly in favor of a depreciating yen as it boosted corporate profits for companies that brought foreign income back home. However, last week the governor made a U-turn, stating that “recent sharp declines in the yen are negative for the Japanese economy and therefore undesirable.”

With opposing voices growing, it would be reasonable to assume that the USD/JPY will find stiff resistance to the impressive rally but this has not happened. Today, USD/JPY reached its highest level in 24 years, surpassing the previous high around 135.60. However, warnings from Tokyo and the Bank of Japan about a weak yen should not be dismissed, especially at a time when it looks like the BoJ will be the last of the highly pessimistic (major) central banks to raise rates – if a rate hike is indeed in the works.

Big Danger Events of the Weekend

One of the factors that stabilized the BoJ’s stance was the relatively low level of inflation witnessed in Japan, with the April figure coming in at 2.5% which looks weak when compared to 9% in the UK or 8.6% in the US. On Friday, if inflation significantly exceeds estimates, we could see the yen depreciate against the dollar with the chances of a first rate hike from the Bank of Japan increase.

Also, Federal Reserve Chairman Jerome Powell is scheduled to present his twice-yearly monetary policy report to the US Senate on Wednesday and Thursday. Questions are sure to arise about last week’s strong 75bp rally and how the Fed expects to make a soft landing after a prolonged period of accommodative monetary policy.

Customize and filter live economic data via DaliyFX Economic calendar

Key technical levels for the USD/JPY pair

The USD/JPY pair regained some losses at the end of last week – a week that saw a surprise 50 basis point rise from the Swiss National Bank (SNB), a violent 75 basis point rise from the Federal Reserve with more to come depending on the data, confusion From the European Central Bank regarding the bond market anti-fragmentation tool.

However, the strong rejection ahead of the 131.35 level has paved the way for another advance in the USD/JPY pair, easily rising above the previous levels. Today, the pair is trading above last week’s high of 135.60, and quickly approaching 136 stable. The closest resistance is now at the October 1998 level at 136.89 followed by 139.26 (May 1998). Support appears at 135 flats, 133.20 and 131.35.

USD/JPY daily chart

USD/JPY hits 24-year high amid uncertain policy response

Source: TradingView, prepared by Richard Snow

The monthly chart helps provide some context for the multi-month uptrend and potential turning points in the USD/JPY. Historically, the USD/JPY pair has been at very high levels which will intrigue traders who are bouncing back and looking for signs of a possible long-term reversal.

USD/JPY monthly chart highlights 1998 level

USD/JPY hits 24-year high amid uncertain policy response

Source: TradingView, prepared by Richard Snow

Written by Richard Snow for DailyFX.com

Connect with Richard and follow him on Twitter: Tweet embednowFX

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