The Japanese yen’s downswing is turning into a rout. USD/JPY has climbed a massive 1.16% today and briefly punched across the 121 line earlier in the day.
Yen’s slide continues
The yen has extended its losses in what has become a miserable March for the currency. USD/JPY has shot up 5.07% this month and has breached the 121 level for the first time since February 2016. The yen took a double-punch on the chin from Fed Chair Powell and BoJ Governor Kuroda, with Powell sending a hawkish message to the markets while Kuroda was dovish.
Fed Chair Powell surprised the markets with an aggressive tone, saying that the Fed could raise rates more aggressively in order to contain inflation if needed. Powell went straight to the point saying, “The labor market is very strong, and inflation is much too strong”. Powell didn’t stop there, as he added that the Fed would not hesitate to implement 50-basis point increases at future meetings if necessary.
Meanwhile, BoJ Governor Kuroda told parliament it was premature for the Bank to debate exiting its loose policy and that it would continue to purchase ETFs as needed. Kuroda said that the Bank needed to “patiently maintain our powerful monetary easing” in the face of rising inflation.
The comments from Powell and Kuroda have widened the US/Japan rate differential and sent the yen tumbling lower. US Treasury yields rose on Monday to their highest level since 2019 and the upswing has continued on Tuesday, with the 10-year Treasury yield rising to 2.34%. With the yen being extremely sensitive to the rate differential, a further rise in US yields will spell more trouble for the yen, which could move towards 123.00 or even 125.00. Japan’s Finance Ministry is monitoring the dropping yen but is unlikely to intervene in the currency markets unless the yen’s movement becomes noticeably disorderly.
- USD/JPY has broken through resistance at 120.72. Above, there is resistance at 122.04
- There is support at 118.62 and 117.84