Yen rebounds on lower US yields

The yen is lower at the start of the week. USD/JPY is trading at 136.53, up 0.34%.

For a change, the yen enjoyed a winning week against the dollar, the first in two months. During that time, USD/JPY has soared about 7.9% and touched a 20-year high of 139.39 earlier in July. This led to speculation that the yen might break above another milestone, this one being the 140 level. However, the yen has since settled down.

Yen jumps on lower US yields

The driver behind USD/JPY remains US yields, as the Bank of Japan continues to exercise strict yield curve control. An aggressive Federal Reserve has pushed US yields higher, widening the rate differential and causing misery for the yen. However, US yields have corrected lower, allowing the yen to make a recovery and move some distance from the symbolic 140.00 line. If US yields move sharply lower this week, the USD/JPY could fall as low as 132.00.

The yen’s most recent slide has shown that the BoJ and Japan’s Ministry of Finance appear unwilling to intervene in order to prop up the yen, with Japanese officials focused on maintaining loose policy in order to support the ailing Japanese economy. USD/JPY broke above 130 and 135 with barely a protest out of Tokyo, which leads me to believe that if there is a line in the sand when it comes to the yen, it is not at 140.00. This means that many market participants might choose to remain long on USD/JPY and try to test 140.00, although that remains a risky stance.

The week kicks off with the BOJ minutes from the June meeting and BoJ Core CPI, the Bank’s preferred inflation indicator. The index has been on the rise and climbed to 1.5% in May, up from 1.4% a month earlier.

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USD/JPY Technical

•  USD/JPY has support at 134.81 and 133.53
• There is resistance at 136.84, followed by 138.12

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