Dollar/Yen punches above 122

Yen slides close to 1 per cent

The US dollar is pummelling the Japanese yen, as USD/JPY trades at 122.31 in the North American session, up 0.97% on the day. USD/JPY hasn’t been at these levels since December 2015. The currency is down a massive 6.36% in March and the downswing could continue.

The yen is sensitive to the US/Japan rate differential, and higher US Treasury yields continue to spell trouble for the Japanese currency. The 10-year Treasury yield has risen to 2.37% today, and the 2-year yield has also gained ground. The rate differential has widened this week, with Fed Chair Powell sounding uber-hawkish and entertaining 1/2 point rate hikes, while at the same time BoJ Governor Kuroda has said that the Bank will maintain its loose policy in the face of rising cost-push inflation. This ultra-accommodative stance clearly puts the BoJ at odds with the Fed with regard to monetary policy and puts downward pressure on the struggling yen. Another major central bank which is out of sync with the Federal Reserve is the ECB. Christine Lagarde does not intend to change the Bank’s dovish stance, even though inflation continues to accelerate in the eurozone.

Japan releases Tokyo Core CPI on Friday. This release follows BOJ Core CPI, the central bank’s preferred inflation gauge. The January reading of 1.0% YoY was the highest gain since March 2016. Japan’s inflation levels pale compared to those of the UK or US, but the fact that the BoJ is talking about rising inflation is a new phenomenon after decades of deflation. Still, tighter policy in the form of a rate hike appears a long way off.

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USD/JPY Technical

• USD/JPY continues to break above resistance lines. The next resistance line is the 52-week high of 1.2240
• There is support at 120.72 and 119.94

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