The monetary policy divergence between the Bank of Japan - which is on the far dovish side of the spectrum - and most of its major peers, is the major driver behind Yen's weakness, with FXCM's JPYBasket shedding around 1.5% today.
The US Federal Reserve on the other hand, has been preparing markets for more rate increases after the March lift-off and has hinted towards a reduction of its balance sheet. In the latest Fed-speak, prominent hawk and voter Mr Bullard did not rule out a 75 basis point rate hike, although it is "not his base case". He also noted that "market pricing is doing some of the work for the Fed". 
Indeed, markets have very aggressive expectations for the Fed's tightening path with CME's FedWatch Tool projecting a half-percentage point adjustment at May's upcoming meeting, with 91% probability at the time of writing. By year-end, the highest probability (43.3%) is assigned to rates standing at 2.50-2.75%. 
Earlier today and as reported by Reuters, Japan's Finance Minister Suzuki said that "sharp currency moves are undesirable", adding that "Weak yen has its merit, but demerit is greater under the current situation". 
Given the fact that Japan is an exporting country, a weak domestic currency has its benefits, but the recent surge in energy and commodity price makes the situation very difficult. A Reuters survey last week, showed that the majority of Japanese companies are worried over the Yen's weakness. 
Despite the verbal intervention, USDJPY has entered its seventh straight profitable week and today it broke above 128.00 for the first time in twenty years, gaining around 1% at the time of writing. From here, it eyes the May 2002 high at 129.12 but the next major resistance area (131.62-132.05) seems distant at this stage.
As the European session gets underway however, the pair faces pressure and from a purely technical prospective, the move is overextended. This could lead to a pull-back towards 126.88, but we struggle to see what could force a notable correction at this point.
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
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