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USDJPY Turning Lower

A softening US Dollar on Wednesday will certainly be welcomed by the Bank of Japan. USDJPY had been rising steadily following the intervention-driven crash from around 160 to low 151s. Japanese officials have been very vocal in recent weeks warning that they will continue to monitor FX markets and stand ready to act as necessary, however, no further intervention has been seen yet with USDJPY currently around mid 155s.
 

USD in Focus

The move lower in USD comes despite hotter-than-forecast PPI data yesterday and warnings from Fed chairman Powell that rates will need to stay in restrictive territory for longer than expected. Today’s US CPI data will be the next test for the pair with the BOJ no doubt hoping for a weaker figure to help drive USD down from here.
 

BOJ Tightening Expectations

Traders now wait to see how the BOJ will proceed on the back of the historic rate hike announced in March. The BOJ held rates steady at the last meeting but signalled a willingness to continue tightening as needed. Recent BOJ commentary has been more on the hawkish side with the minutes of the last meeting showing that many policymakers saw the need to pursue more aggressive tightening.
 

BOJ Cuts Bond Buying

Earlier in the week, JGB yields were seen hitting their highest levels in over a decade as the BOJ announced a reduction in its bond buying operations. The move has been interpreted as a hawkish signal, laying the groundwork for a further hike in July.
 

Technical Views

USDJPY

The rally in USDJPY has stalled for now into a test of the 156.18 level. With momentum studies softening, there is room for the pair to rotate lower from here with the bull channel lows and 151.81 area the next support zone to watch. While this area holds, the bullish outlook remains. 

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