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US Dollar Firms as Favourite Against a Wilting Yen. Where To for USD/JPY?

US Dollar, USD/JPY, Japanese Yen, BoJ, Crude Oil, China, RBI- Talking Points

  • The US Dollar continues to blast higher, supported by rising Treasury yields
  • Higher US yields undermine the Yen as the Bank of Japan sits on its hands
  • A lift in crude oil also hinders the Yen’s prospects. Can USD/JPY break 135?

The US Dollar inched higher again today as Treasury yields bumped up a notch in the Asian session. The benchmark 10-year note is yielding just over 3%. The Japanese Yen remains on the backfoot with USD/JPY making a fresh 20-year high above 133.20 today.

Inflation expectations in Japan are heading north with the 5-year breakeven inflation rate eclipsing 1.3%, up from 0.5% in January. Despite this, the Bank of Japan has shown little interest in tightening monetary policy and today’s growth numbers support their stance.

Japan’s final 1Q GDP came in slightly better than expected today at -0.1% quarter-on-quarter instead of -0.3%.

The weaker Yen lifted the Nikkei 225 and other APAC indices were mostly higher except for the CSI 300, which gave up early gains.

The Hang Seng Tech index benefitted from China approving several new gaming applications. The market is interpreting this as the government being more lenient toward the sector and perhaps more widely.

Crude oil continues to trade at elevated levels ahead of U.S. Energy Information Administration (EIA) reports on inventory later today. The WTI futures contract is near US$ 119.70 bbl while the Brent contract is around US$ 120.70 bbl at the time of going to print.

The gold price is steady at US$ 1,845 while the commodity linked Aussie is lower in the aftermath of yesterday’s RBA outsized rate hike. The Kiwi looks to have sunk in sympathy. The Euro, Suisse and Loonie saw gains while the Sterling was steady.

The Reserve Bank of India (RBI) joined other global central banks with a larger than expected 50 basis-point hike today to take their repurchase rate to 4.90%.

Looking ahead, after the EU GDP numbers, the US will see data on mortgage applications and wholesale inventories.

The full economic calendar can be viewed here.

USD/JPY Technical Analysis

USD/JPY made another 20-year high today as it approaches historical peaks at 135 that may offer resistance.

The breakout has seen volatility tick up as the price has moved outside the upper 21-day simple moving average (SMA) basedBollinger Band.

Support might be at the breakout zone of 131.25 – 131.35 or the 5-day simple moving average (SMA) just above there.

USDJPY CHART

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter