Yen takes a breather

The Japanese yen has settled down after a raucous showing this week. USD/JPY is trading quietly around the 122 line in the European session.

Yen stabilizes after wild ride

The yen has steadied today, after taking investors on a roller-coaster ride this week. USD/JPY climbed 300 points at the start of the week and hit its highest level in almost six years, only to cough up all of these gains. The volatility was driven by the Bank of Japan, which made an usual move of intervening in the financial markets and pushing 10-year JGBs down to 0.22%, slightly below the Bank’s ceiling of 0.25%. The Bank made an unlimited bid on the 10-year yields for four straight days this week, underlying its commitment to its yield curve and fighting off speculators, as USD/JPY punched above the symbolic 125 line before retreating.

The yen has stabilized, but it should be noted that the currency may well have received a boost from year-end repatriation flows. These flows could quickly reverse and put downward pressure on the Japanese currency. As well, a rebound in US yields would be bearish for the yen.

The US dollar was broadly lower on Wednesday, as the markets jumped on the news that Russia announced that it was reducing troops around Kyiv. This raised expectations of a ceasefire, but once again these hopes have been dashed. It appears that Moscow is simply regrouping its forces, apparently to consolidate its grip on the eastern part of Ukraine. The fighting continues, and if risk sentiment dips, the US dollar could get a boost.

This week’s highlight is US nonfarm payrolls, which will be released on Friday.  The ADP report came in at 455 thousand, down slightly from the previous release, which was revised upwards to 486 thousand. Although the ADP is not a reliable indicator for the official NFP, it has nonetheless raised expectations that Friday’s NFP will be solid, with the consensus estimate at 490 thousand.

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USD/JPY Technical

• 121.21 is providing support, followed by 119.98
• There is resistance at 123.32 and 124.55

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