It was another dreadful week for the Japanese yen, which fell 1.60%. USD/JPY climbed as high as 119.39 on Friday, its highest level since February 2016. The yen has lost its footing, and the 120 line, which has psychological significance, is in danger of being breached.
Japanese yen headed for 120
The yen has traditionally served as a safe-haven asset in time of crisis, but the currency has not lived up to its reputation this time around. Risk appetite has taken some hits in the current turbulent landscape, with surging commodity prices and the war in Ukraine. Investors have responded by snapping up dollars rather than yen and commodities are priced in US dollars. As well, with US Treasury yields moving higher, the US/Japan rate differential has widened, which has boosted the US dollar. The yen has wilted in March, falling 3.67%, and it seems only a matter of time before USD/JPY breaks above the 120 level.
The Bank of Japan maintained interest rates at -0.10% at last week’s meeting, where they have been pegged for years. We’re seeing the major central banks embark on a tightening cycle, with the notable exception of the BoJ. The Bank not only said it would continue its quantitative and qualitative easing policies for as long as needed but stated that it could take further easing measures due to Covid-19. The possibility of further easing is putting more pressure on the struggling yen.
The war in Ukraine has dragged on for a month, and the Russian invasion has stalled in the face of stiff Ukrainian resistance. Civilian casualty figures continue to rise as Russia has stepped up its campaign of hitting civilian targets. Over the weekend, the Turkish foreign minister said that the two sides were making progress on a peace agreement, but previous such announcements all proved to be premature. If there are tangible signs of progress towards a ceasefire, we could see risk apprehension fall and a rotation out of US dollars.
USD/JPY Technical
- USD/JPY faces resistance at 119.94 and 120.72
- There is support at 118.62 and 117.84
