The pair is up another 0.4% today to 141.70 levels as buyers are returning to retest the 21 July high at 141.95 currently. A break above that and the 142.00 mark will set the pair up for a run back towards 145.00 potentially next.
USD/JPY daily chart
After plenty of volatility swings on Friday, the Japanese yen settled lower. And somehow I feel inclined to put some blame for that on the BOJ’s poor communication in executing its latest policy adjustment. As mentioned last week:
“For now, the volatility swings are making it tough to read into the price action. Yen bulls would’ve hoped for a more bold and courageous BOJ to seal the deal but that is not the case. The BOJ is fearful of not doing anything on the inflation front, so they are hiding it behind a move of raising the 10-year JGB yields target to 1.00%. However, they are trying to be implicit about it instead of explicitly making such a call. That’s not a great deal of confidence but hey, at least it is something. But I’m sure the yen bulls would’ve been hoping for more.”
I’m not a fan of central bank trying to hide behind semantics and this is one of those moves. And it seems like markets don’t appreciate that either.
If we do start to see USD/JPY move back towards 145.00, you can expect to see the usual verbal intervention play come in again as this would not be to the liking of Japanese officials. They surely would have hoped that their latest move would at least keep the currency steadier or in firmer footing. However, if there is one thing they should know about markets, is that to it would never give up a free pass on something.
The intense selling in the yen since April was only partly corrected earlier this month and if the BOJ insists that this is not a step away from easy policy, so be it. The communication was lackluster and yen bears will test that the above theory to see if the central bank really has any appetite to go along with what they said.
But if you look at the JGB market, it is clear that change is afoot:
Japan 10-year JGB yields (%) daily chart
10-year JGB yields are now at 0.60% – its highest since 2014. That is also translating to bond market angst in other markets and higher yields is also one factor that is also bolstering USD/JPY upside for now perhaps.