Japanese yen extends slide

It was another rough week at the office for the Japanese yen, as USD/JPY fell 1.67%. The crumpling yen hasn’t eked out a daily gain since March and has extended its losses today. In the North American session, USD/JPY is trading at 126.88, up 0.42% on the day.

Rate differential weighs on yen

The yen is essentially at the mercy of the US/Japan rate differential, and with that differential continuing to widen, the yen continues to head south. US 10-year Treasury yields rose to 2.87% earlier today, their highest level since 2019. The outlook for USD/JPY remains bearish and we could see the symbolic 130 line fall in the short term.

The US Federal Reserve is in hawkish mode, and has telegraphed its intent to increase rates by 0.50% at the May 4^th meeting. CME’s Fed Watch has set the likelihood of this scenario at 88%, meaning it’s a done deal unless there is some drastic, unexpected development ahead of the meeting. The Fed is scrambling to fend off spiralling inflation, which hit 8.5% in March, a 40-year high. With investors looking for clues about how tight the Fed plans to go, comments from senior Fed officials will be carefully scrutinized and could be market-movers. Later today, Fed President James Bullard, one of the most hawkish FOMC members who favours aggressive action from the central bank, will deliver public remarks later in the day, and the markets will be all ears.

USD/JPY pushed above its multi-year high of 125.80 last week and the upswing shows no signs of easing. The Bank of Japan has expressed its uneasiness at the rapid fall in the yen’s value, but has refrained from anything more than “jawboning” about the issue. It’s unlikely that the BoJ will intervene except as a last resort in order to keep 10-year JGB yields below 0.25%, which the Bank has designated as its line in the sand.

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USD/JPY Technical

• USD/JPY continues to climb and break above resistance lines. The pair faces resistance at 1.2740 and 1.2837
• There is support at 125.72 and 1.2475

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