Japanese yen falls to five-year high

The US dollar continues to pummel the Japanese yen. USD/JPY pushed above the 117 line earlier today for the first time since January 2017. USD/JPY is up 0.61% on the day and has recorded a massive gain of 1.76% this week.

We continue to see sharp volatility in the currency markets and the Japanese yen has not been immune to the turbulence. Risk apprehension has been fluctuating, depending on developments in the Ukraine crisis. Like the US dollar, the yen is also considered a safe-haven currency, but with the US economy in much better shape than that of Japan, the US dollar has been the big winner from the recent turbulence we’re seeing in the markets. As well, commodities are priced in US dollars, so the recent surge in commodity prices has boosted the US dollar. If the Ukraine crisis worsens and commodity prices continue to soar, it is entirely feasible that the USD/JPY will continue its upswing and break above the 120 line.

US inflation jumps to 7.9%

In the US, headline CPI continued to accelerate, with a gain of 7.9% for February YoY. This matched the forecast and was up from 7.5% beforehand. With inflation running at 40-year high, there’s little doubt that the Fed will raise rates at next week’s meeting, most likely by 25 basis points.

Japan ended the week with mixed numbers. Household Spending for January showed a sharp rebound of 6.9% YoY, up from -0.2% in December and above the consensus of 3.3%. However, the BSI Manufacturing Index for Q1 came in at -7.6, down from +7.2 in Q3 and way off the consensus estimate of +8.2. The BoJ is expected to maintain a dovish stance, despite rising inflation. On Friday, a senior BoJ official stated Japan’s current and economic price conditions would make it inappropriate to respond with monetary tightening.

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USD/JPY Technical

• USD/JPY continues to climb and break above resistance lines. Earlier in the day, the pair broke above resistance at 116.27 and 116.72. The next resistance is at 117.33.
• There is support at 115.56 and 115.11

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