Japanese Yen plummets as BoJ chooses isolation on Policy Matters

Midday Update

Carry trades have been profitable so far post-BoJ policy meeting last week Friday and the policy isolation continue to weigh down the Japanese Yen in the near term. The global central banks take centre stage as they address the hot topics on inflationary pressure escalated by the Ukraine/Russia war. The rising interest rate environment has caused a policy divergence with BoJ choosing to remain neutral undermining the yield-sensitive Japanese Yen.

The USD extended gains early Tuesday morning post hawkish press conference from Fed Chairman Powell on Monday. The USDJPY rose +1.18%, as bulls target a 6-year high at 121.75 which coincides with January 2016 resistance.

The markets are pricing in a 6-times rate hike in 2022 after the previous hike with 25bps leaning towards a more aggressive cycle after Fed Powell indicated they are open for a 50bps hike if conditions necessitate. The pair broke a near-term psychological resistance to reclaim 120.90 on Tuesday as investors embrace a more bullish outlook.

The GBPJPY surged on a depreciating Japanese Yen as policy divergence weigh down the yield-sensitive currency. The BoE increased their interest rates by 25bps although they are cautionary in their stance. The BoE revealed a possible 25bps hike in the next policy meeting in May. The GBPJPY gained 1.55% after breaking above October 2021 high at 158.00 creating a new 6 year high. Bulls face a near-term barrier at 161.00 and a breach above that resistance may give room for further upside.

EURJPY soared +1.05% breaking above 131.912 near-term high and bulls could move further upside towards 134.00, May 2021 high. The ECB members focus on curbing inflation as their priority in the near term. Eurozone suffered parabolic swings in commodity price as the Ukraine/Russia war send shockwaves across the globe. The EURJPY got a boost after ECB member Guindos dismissed the possibility of stagflation.

European Equities remained rangebound due to stabilizing gas prices as Russian pipeline flows remain stable. The DAX rose +0.70% although gains remain capped by 14570.00 near-term resistance. FTSE climbed +0.38% as bulls attempt a break above critical resistance at 7450.00. The index may target 7570.00 in the near term however a price correction may bunce off 7400 near-term support.

US Equity markets closed lower on Monday after US Fed Chair Powell signalled a more aggressive policy tightening than previously anticipated by the market. The Dow Jones Industrial Index slid -0.38% closing at 34553.00, while the Nasdaq dropped -0.31% ending the day rangebound between 14512.28 high and 14200 low. The S&P500 was slightly lower at -0.04% closing at 4461.17 as a tighter policy may mean lower equities.

The US 10-year bond yields extended gains above 2.239% last week’s high as yields price in a more aggressive rate hike by the Fed in 2022. On Tuesday the 10-year yield rose +2.22% and room for upside gains has opened for a target above 3.266% in the near term.