USD/JPY plummets from multi-year highs above 135.00 towards 134.20s ahead of Fed’s decision

  • The USD/JPY reached a 24-year high above 135.00 but retreated on fears of Japanese intervention in the FX markets.
  • A dismal market mood boosts safe-haven peers, thus favoring the JPY, as USD/JPY traders booked profits.
  • The Fed and the Bank of Japan will unveil their monetary policy decisions in the week.

The USD/JPY plunges close to 200 pips after breaking above the 135.15 January 2002 high, as speculations of Japanese authorities’ intervention in the FX market emerged last Friday. At 134.18, the USD/JPY retreated from daily highs at around 135.19, despìte US Treasury yields extending their gains towards multi-year highs.

US bond yields rise, but the USD/JPY remains heavy during the day

Global equities remain under pressure as investors assess the almost 9% inflation in the US. Negative sentiment favors safe-haven peers and, in the case of the USD/JPY, the yen. However, during the day, the major weakened to a 24-year, though retreated on a verbal intervention expression by Japanese authorities on Friday, which said, “It’s important that currency rates move in a stable way, reflecting fundamentals. But there have recently been sharp yen declines, which we are concerned about.”

In the meantime, the US Dollar Index, a gauge of the buck’s value against its peers, is advancing 0.64% at 104.857 after reaching a 20-year high at around 105.065.

Central bank divergence between the Fed and the BoJ’s had been the main drivers of the USD/JPY in the year. Also, the positive correlation of the pair with the US 10-year Treasury yield triggered a USD/JPY rally, from 116.00 to 135.00.

Earlier, the short-end of the yield curve, the 2s-10s, inverted during the day on concerns that a higher Federal Funds Rate (FFR) might trigger a recession, as the US central bank battles inflation readings near 9%, not seen since 1981. Also, it is worth noting that some Wall Street’sbanks increased their calls for a potential 75 bps increase, even a 100 bps increase.

Reflection of the aforementioned is the US 10-year benchmark note rate, up at 3.343%, gaining almost 20 bps.

Fed’s and BoJ’s monetary policy decisions, the spotlight on the calendar

A busy US economic docket would keep USD/JPY traders entertained. On Tuesday, the Federal Reserve June meeting begins, and on Wednesday, they will unveil its decision. Later on, the Fed Chair Jerome Powell will high the stand.

Meanwhile, the Japanese docket would feature the Industrial Production, Machinery Orders, and the Balance of Trade. By Friday, the Bank of Japan will reveal its monetary policy, widely expected to hold rates negative at -0.10%.

Key Technical Levels

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