USD/JPY Sets New 5-Year Highs Ahead of This Week’s Fed & BoJ Meetings

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USD/JPY

The pair started the day with the wind in its sails, coming from its best week since March 2020 and the start of the Covid-19 pandemic. As such, it extends it advance into the sixth straight day, to fresh highs not seen since January 2017.

The monetary policy divergence between the central banks of USA and Japan is one of the drivers, as both announce their monetary policy decisions this week.

The Federal Reserve hands down its decision on Wednesday, having pointed to its first rate hike since 2018, in a backdrop of surging inflation. The Bank of Japan on the other hand, is on the far dovish side of the policy spectrum, still purchasing assets, while interest rates stand at -0.1%.

Another factor that is not working in favor of the Japanese Yen, is the optimism which markets show in regards to the negotiations between Ukraine and Russia.

Earlier today, Ukrainian President Zelenskyy noted that the two delegations are in constant video talks, and that "Our delegation has a clear task - to do everything to ensure a meeting of the presidents". [1]

On Friday, Russian President Putin was quoted saying that "There are certain positive developments there, as the negotiators from our side reported to me" - as reported by Russian news Agency TASS. [2]

USD/JPY's recent rally has brought January 2017-December 2016 highs (118.67-2) in its crosshair, although fresh impetus may be needed for surpassing it. From a technical prospective, the move is overextended and this can create pressure back towards 117.00, but a strong catalyst will likely be required for a larger decline towards and below 116.35.

Caution is needed as we head towards the Fed's potentially highly consequential decision and markets monitor the news around Ukraine.

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 14 Mar 2022 https://www.president.gov.ua/en/news/peremozhemo-zavdyaki-nashomu-vminnyu-gurtuvatisya-ta-zavzhdi-73541

2

Retrieved 03 Jul 2022 https://tass.com/politics/1420633

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