Japanese Yen Forecast: USD/JPY Rises as Treasury Yields Gain Momentum
By Rich Dvorak | Source: Forex Factory
The Japanese yen (JPY) weakened against the US dollar (USD) as USD/JPY surged in response to rising US Treasury yields. The rally in bond yields revived renewed bullish momentum for the greenback, placing downward pressure on the yen. This movement extends a multi-week uptrend for USD/JPY, indicating persistent market confidence in the American economy and a relatively more dovish stance from the Bank of Japan (BoJ) compared to the US Federal Reserve (Fed).
The divergence in monetary policy direction between the Fed and BoJ remains the dominant theme in forex markets, especially driving major pairs such as USD/JPY. With US Treasury yields surging and US inflation data remaining sticky, investors are betting on a more hawkish Fed stance relative to Japan’s cautious approach to tightening. As a result, the yen is once again under fire, descending in value while the dollar gains.
Key Points:
– USD/JPY climbed sharply in recent trading sessions following a surge in US Treasury yields.
– Investors remain focused on monetary policy divergence between the Federal Reserve and the Bank of Japan.
– BOJ is maintaining ultra-loose monetary policy even as other central banks, particularly the Fed, signal and implement tighter policy.
– Risks of currency intervention by Japan remain in the background, although recent moves have not yet triggered official action.
USD/JPY Market Performance
The USD/JPY pair has maintained a strong upward bias over the past month correlating with consistently rising bond yields in the US. With the 10-year US Treasury yield topping 4.6%, the dollar has found renewed strength.
– The pair has broken above psychological and technical resistance levels and currently trades close to multi-month highs.
– The bullish structure is supported by both fundamental and technical conditions, and volatility appears to be on the rise in the weeks ahead.
Analysts now watch for the exchange rate to test its previous 2024 highs, where potential resistance may emerge.
Technical Analysis: Key Levels and Outlook
Technically, USD/JPY broke convincingly above the 155.00 level, a significant psychological and technical barrier that traders had closely monitored in recent weeks. Once breached, momentum accelerated.
Key Technical Highlights:
– The 50-day moving average continues to support the pair’s uptrend.
– Breakout above resistance near 155.00 has unlocked further upside potential.
– Next resistance is noted near 157.00, a level aligned with price congestion from 2022.
– If bulls continue to dominate, potential exists for USD/JPY to target 158.50 in the medium term.
– Immediate support lies near the 154.00 level, followed by the 151.80 area.
The relative strength index (RSI) has not yet entered extreme overbought territory, suggesting further room for upward price action before potential consolidation or correction.
Monetary Policy Divergence: The Main Catalyst
The primary driver of USD/JPY continues to be the stark contrast in central bank policy between Japan and the United States.
Federal Reserve:
– The Fed has retained a hawkish tone as it continues to address inflationary pressures.
– While rate cuts have been discussed for 2024, recent economic reports suggest inflation remains sticky, keeping rate reduction plans on hold for now.
– Strong employment data and robust consumption further justify a cautious Fed stance on easing.
Bank of Japan:
– The BoJ has taken a more dovish posture, despite lifting rates modestly in their March meeting for the first time since 2007.
– After this historic step, the BoJ signaled that it intends to retain accommodating monetary conditions citing weak inflationary expectations and slow wage growth.
– BoJ Governor Kazuo Ueda emphasized the central bank’s commitment to supporting economic recovery before pursuing further rate hikes.
The yield differential between Japanese government bonds and US Treasuries widened again recently, adding to yen downside
Explore this further here: USD/JPY trading.