Dollar/yen barrels past 130

It’s up, up and away for dollar/yen, which has punched above the symbolic 130 today, the first time that has occurred since 2002. USD/JPY is trading at 130.40, up 1.53% on the day.

Japan MOF issues warning over yen

The Bank of Japan reiterated its commitment to ultra-low rates at its policy meeting on Thursday. The BoJ pledged to keep interest rates at “present or lower levels”. Notably, the central bank said it would continue to buy unlimited amounts of 10-year JGBs daily, rather than on an ad-hoc basis, in order to cap yields at 0.25%. The move to cap yields has worked, but the price has been a plunge in the yen’s value. USD/JPY rose as high as 131.01 earlier in the day, and has risen a staggering 7.11% in the month of April.

The BoJ and Japanese Ministry of Finance (MOF) have done little more than jawbone about the slide in the yen, but there has been speculation that the 130 level could be the ‘line in the sand’ which would trigger intervention in the currency markets. The MOF responded on Thursday with a strong warning, saying that the recent moves are “extremely worrying” and that the government would take “appropriate action”. Perhaps the MOF ought to take a look at BoJ’s Governor Kuroda’s statement after the policy meeting that a weak yen was good for Japan’s economy. This has been Kuroda’s view all along, but it’s hard to get worked up about MOF threats when the BoJ is winking to the markets that it’s fine with a weak yen.

The BoJ is projecting that CPI will rise to 2% in April, but the main drivers of inflation are fuel costs and mobile phone fee cuts, rather than wage growth or stronger demand. The BoJ is viewing inflationary pressures as transitory and plans to maintain its ultra-loose policy.

USD/JPY risk remains heavily tilted higher, primarily because of the US/Japan rate differential, which continues to widen. The Federal Reserve is in a very aggressive mode, with an oversize half-point hike almost a given at next week’s policy meeting. Fed Chair Powell and other FOMC members have telegraphed that further 0.50% hikes are on the table, as the Fed prepares to come out swinging in order to subdue inflation.

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USD/JPY Technical

• USD/JPY has broken above resistance at 129.87. Above, there is resistance at 129.89 and 131.22
• USD/JPY has support at 128.07 and 126.74

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