USD/JPY Hits Nearly 7-Year Highs as BoJ Steps In to Control Yields

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BoJ Steps in to Control Yields

The Bank of Japan announced today its decision to purchase an unlimited amount of 10-Year Government Bond (JGBs) over the next three days at 0.25%, [1] with the last such intervention having taken place in mid-February at the same rate. As per Reuters, the BoJ had already made two offers for such purchases today. [2]

The moves comes as the central bank tries to control the rise in the 10 Year Bond Yields and defend its yield curve policy, which aims to keep the 10-Year JGB Yields at around zero percent. Although there is no concrete upper ceiling, the 0.25% level is considered as an implicit target and is confirmed by this year's purchases announcements.

USD/JPY Extends its Rally

This move highlights the monetary policy differential between the bank of Japan and the US Federal Reserve, with the latter having concluded its Quantitative Easing program (QE) and raised its interest rates earlier this month.

The hawkish Fed-dovish BoJ theme has fueled this month's USD/JPY massive rally, which exceed 8% at the time of writing. Today it gains around 2% and rallies to the highest level in nearly seven year and, closing in on the 2015 high (15.86). The next immediate resistance are located at 126.88 and 126.54.

From a technical prospective, the move is overextended and a pull-back would be reasonable. This could lead back towards mid-122.00, although a decline towards and below 121.17 would likely require a strong catalyst.

Caution is needed as volatility is high and markets monitor many other developments that could potentially affect the pair, such as the war in Ukraine and the Covid-19 situation in China.

Nikos Tzabouras

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.

References

1

Retrieved 28 Mar 2022 https://www.boj.or.jp/en/announcements/release_2022/rel220328d.pdf

2

Retrieved 28 Jun 2022 https://www.reuters.com/world/asia-pacific/boj-offers-buy-unlimited-10-year-bonds-defend-yield-ceiling-2022-03-28/

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