Japanese yen flirting with 109

The Japanese yen is almost unchanged in the Monday session. Currently, USD/JPY is trading at 108.74, down 0.09% on the day.

Yen poised to break 109 level

The Japanese yen remains vulnerable and the symbolic 109 level is under strong pressure. The dollar has had its way with the yen in 2021, as USD/JPY has jumped 5.5% this year. Last week, the pair climbed to 109.36, its highest level since June 2020. The yen is particularly sensitive to rate differentials between the US and Japan, so the increases in US yields are putting strong pressure on the Japanese currency. The 10-year Treasury yield enjoyed another strong week, rising to 1.72% on Friday. Although the 10-year bond has retreated to 1.67% on Monday, the trend remains positive for bonds, which likely spells more trouble for the shaky Japanese yen. This week has more than 100 billion dollars in government bond auctions, which will test the market’s appetite for bonds following last week’s Fed policy meeting.

In Japan, the equity markets are sharply lower after the BoJ widened its JGB trading band and tweaked its ETF guidance at its policy meeting on Friday. BoJ Governor Kuroda didn’t surprise anyone when he said that monetary easing would continue for a long time. The bank has opted to make some tweaks rather than overhaul its monetary policy, and for this reason the bank’s inflation target of 2 percent is likely to remain a bridge too far for the foreseeable future. Later, the bank releases BoJ Core CPI, its preferred inflation gauge (Tuesday, 5:00 GMT).

The market will be again paying close attention to the Federal Reserve this week. Later on Monday, Fed Chair Powell will participate in a panel and we’ll also hear from FOMC members today and on Tuesday. Powell will testify on Tuesday and Wednesday before Congress, together with Treasury Secretary Yellen. The topic of Powell’s testimony is the CARE Act for Covid relief, but investors will be looking for any comments related to higher bond yields or inflation. Any remarks in this regard from Powell or Yellen could shake up the US dollar.

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USD/JPY Technical Analysis

• USD/JPY is currently range-bound
• On the downside, the pair is putting pressure on support at 108.55. Close by, there is support at 108.20
• There is resistance at 109.30, followed by resistance at 109.70

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