Japanese yen breaks below 130

The Japanese yen has posted winning sessions for three straight days and is in positive territory on Tuesday. Japanese markets are closed today for a holiday, so any strong movement from the yen is unlikely today. It’s a very light day on the economic calendar. There are no Japanese events, while the US releases Final Manufacturing PMI.

Yen keeps rolling

Japanese markets remain closed for an extended holiday but the good times continue for the yen. Since falling to 151 in October, the currency has rebounded and earlier today broke below the symbolic 130 level, for the first time since May. If USD/JPY closes the day below 130, that will give support for the downtrend to continue. The next target for a downside push is the 125 line, which has held since April.

Investors would love to know what the Bank of Japan has planned in the coming months. The BoJ tweaked its yield curve band in December, a move that blindsided the markets and sent the yen flying higher. With Governor Kuroda winding up his 10-year term in April, there were no expectations that Kuroda would make any significant policy changes, and the focus was on his potential successor. Kuroda has insisted that the tweak was not a prelude to the Bank exiting its massive stimulus program, but the markets aren’t so sure. What is clear is that inflation continues to rise in Japan, which is putting pressure on the BoJ to tighten policy. This could take the form of further widening the yield curve band or eliminating the 0% target for 10-year yields.

The BoJ next meets on January 18^th and investors will be all ears. BoJ policy meetings used to be sleepy affairs, where board members dutifully announced they were maintaining current policy. This is clearly no longer the case, with the BoJ widening the yield curve band at the December meeting and board members discussing the impact that an exit from stimulus would have on the markets.

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USD/JPY Technical

• USD/JPY is testing support at 130.50. The next support level is 129.76, which has held since June
• There is resistance at 131.25 and 132.13

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