JPY Weakening

USDJPY is pushing back up towards the 1.45 level this week as JPY weakness returns, despite the BOJ last week tweaking its YCC program to allow for higher yields. This move was seen by many as the BOJ laying the groundwork for a potential shift in monetary policy. However, with BOJ governor Ueda reaffirming the bank’s commitment to keeping easing in place for now, the market is once again putting pressure on JPY. Hawkish Fed comments and uncertainty ahead of this week’s US CPI data are helping support USD currently.

BOJ On Watch

The issue with the BOJ is interesting, however. At the latest meeting, BOJ governor Ueda explained that FX-market volatility had been a driving factor in the bank’s decision to widen he YCC band. This is noteworthy in that it marks a break from the BOJ’s typical message that it doesn’t deal with FX rates, which fall under the jurisdiction of the ministry of Finance. As such, traders are now likely to be more cautious as JPY weakens. 145 has been touted as a level at which the BOJ is likely to intervene given the actions we saw last year as well as the reaction from 145 earlier this year. As such, the pair should be closely watched as we move close to a further test of that level, particularly if Thursday’s US CPI comes in hot sending USD higher.

Technical Views

USDJPY

USDJPY is now trading back above the 142.21 level, just below the YTD highs seen earlier this year around 145. While within the upper part of the bull channel and with momentum studies bullish, the focus is on a continuation higher here and a challenge of the 145 level next. To the downside, should we reverse, 138.03 is the key support to watch along with the bull channel lows.