Will Dollar/Yen hit 130?

The Japanese yen hasn’t managed a single winning session in the month of April, as the dollar has pummelled the yen over the past few weeks. Dollar/yen has climbed to 6-year highs and appears headed for even higher levels. The dollar index has risen 0.17% to 100.10, with the next resistance line around 100.50 and support at 99.50.

US yields weighing on yen

What has happened to the yen? The main driver behind the yen’s poor performance is the continuing upswing in US Treasury yields. US 10-year yields have risen for seven straight days and have climbed to 2.79%. 30-year yields are at 2.81%, their highest level since 2019. The rise in yields comes as the Fed is likely to implement super-size 0.50% rate hikes and also begin quantitative tightening shortly.

The yen is extremely sensitive to the US/Japan rate differential, and the widening of the differential has sent the yen crashing – USD/JPY rose 5.85% in March and has added another 3.20% so far in April. USD/JPY is closing in on its multi-year high of 125.86 and in this environment, 130 certainly is feasible.

The Bank of Japan has tried to curb the yen’s nasty slide, mainly with comments that the Bank is watching the markets closely and that it is uncomfortable with rapid moves in the exchange rate. That hasn’t done the job, raising the question of whether the central bank take more aggressive action if the yen continues to lose ground.

The struggling yen won’t get any help from Japan’s sluggish economy. On Monday, the BoJ downgraded its forecast for 8 out of 9 regional economies, with Governor Kuroda warning that the war in Ukraine had led to “very high uncertainty” as to the impact on Japan’s economy and inflation. This has raised concerns that the BoJ may lower its growth forecasts later in April, which would likely put further pressure on the wobbly yen.

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USD/JPY Technical

• USD/JPY has broken above resistance at 125.22. Above, there is resistance at 1.2615, which has held since May 2002
• There is support at 123.71 and 122.81

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