Japanese yen jumps as dollar retreats

The Japanese yen has jumped out of the gates on Monday. Currently, USD/JPY is trading at 108.02, down 0.66% on the day. The yen is currently at its highest level since March 5th.

Japan exports jump

The global economy is finding its feet, as vaccine rollouts continue to gather steam and economic activity improves. Japan’s exports in March climbed 16.1% YoY, marking the first double-digit rise in over three years. This resulted in a trade surplus of 0.30 trillion yen for March, after a rare trade deficit a month earlier (00.4 trillion yen).

US Treasury yields continue to have a significant impact on the direction of the yen. USD/JPY sparkled in March, with gains of 3.87%. The catalyst for the strong gains was the rise in US yields, as the Japanese yen is particularly sensitive to rate differentials. April has been much kinder to the yen, which has gained 2.37%. With US bond auctions being well-received, yields have fallen, and the dollar has lost much of its lustre.

The US dollar is broadly lower on Monday and the Japanese yen appears headed to one of its best one-day performances in 2021. A key reason for the dollar’s slide is that the market appears to have internalized the Federal Reserve’s message that any increase in inflation will be only temporary. This has led to a significant reduction in expectations of a rate hike in the near future, which has seen the yen and the other majors register sharp gains against the greenback. As well, with a lack of data on Monday to direct the currency markets, the focus is on sentiment, which is risk-on. This is another factor which has contributed to the dollar’s retreat on Monday.

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USD/JPY Technical Analysis

• USD/JPY is testing support at 108.34. Below, there is support at 107.90
• There is resistance at 109.50, followed by resistance at 110.22

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