Japanese yen drifts, Powell & Yellen show

The Japanese yen continues to trade sideways this week. Currently, USD/JPY is trading at 108.71, down 0.12% on the day.

The Japanese yen remains under pressure, as the dollar is in striking distance of the symbolic 109 level. It has been a rough first quarter for the yen, as USD/JPY has jumped 5.5% this year. Last week, the pair climbed to 109.36, its highest level since June 2020. The yen is particularly sensitive to rate differentials between the US and Japan, so the recent increases in US yields are putting strong pressure on the Japanese currency. This week has more than 100 billion dollars in government bond auctions, which will test the market’s appetite for bonds following last week’s Fed policy meeting. If the reception for US bonds is cool, yields will rise and that will put more pressure on the Japanese currency.

On the inflation front, Japanese numbers continue to head downwards. BoJ Core CPI fell by 0.2% in January, matching the forecast. The indicator, which is the central bank’s preferred inflation gauge, hasn’t managed a gain since May 2020. Later in the day, Japan releases the Services Producer Price Index (SPPI), which is expected to post a fifth successive decline, with a street consensus of -0.5% (23:50 GMT). At the same time, the BoJ releases the minutes of its February meeting.

Powell and Yellen call for additional federal aid

Over in the US, Fed Chair Powell and Treasury Secretary Yellen testified before a congressional committee earlier today. Both urged the government to do more to boost the economy and speed up the recovery from the severe downturn caused by Covid-19. The Fed has pledged to continue its accommodative stance, which could see yields ease further and push the US dollar to lower ground.

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USD/JPY Technical Analysis

• On the downside, the pair continues to put pressure on support at 108.55. Close by, there is support at 108.20
• There is resistance at 109.30, followed by resistance at 109.70

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