Dollar yen – up, up and away

The misery continues for the Japanese yen, which has plummeted at the start of the week USD/JPY is trading at 124.62 in the European session, up 2.06%.

BoJ move sinks yen

USD/JPY broke above the symbolic 125 line in the European session, as the yen is seeing all red today. The yen was hammered after the BoJ rushed to defend its yield target today, making two offers to buy unlimited 10-year JGBs at 0.25%, an implicit ceiling for 10-year bonds. The Bank’s unusual move to intervene in order to maintain its ultra-accommodative policy has pushed the yen to its lowest level since August 2015.

The yen has plunged in March, with USD/JPY soaring 8.45%. The weakening currency is adding to inflation by making imports more expensive, which could make it difficult for the BoJ to continue trying to cap yields at ultra-low rates. The yen has been walloped by the US/Japan rate differential, which continues to widen. US Treasury yields remain on an upswing, with the 10-year yield inching higher to 2.50% today.

Aside from the Bank of Japan, another key player which is monitoring the yen’s movement is the Ministry of Finance (MOF). On Friday, in an attempt to shore up support for the woozy yen, Minister of Finance Suzuki said that “Exchange-rate stability is important, and sharp volatility is undesirable.” No doubt that Suzuki is in a sour mood on Monday, with the yen extending its slide against the dollar.

Will the MOF become more forceful if the yen continues to weaken? The MOF is uncomfortable with the yen’s sharp downswing, and a BofA note on Monday said that if the yen climbs above 125, the ministry could warn speculators against intervention. If USD/JPY breaks above 1.30, there is the possibility of actual intervention by the MOF, according to BofA.

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USD/JPY Technical

• 124.55 is a weak resistance line. Above, there is resistance at 1.2666
• There is support at 121.21 and 119.98

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