Another week meant more losses for the Japanese yen as USD / JPY hit above the symbolic 130 line for the first time in 20 years. How bad is the yen? The currency last posted a winning week in February, with USD / JPY hovering 6.86% in April. Not a good report card.
The yen’s decline was sharper than expected as USD / JPY broke through resistance at 130 much faster than expected. The rapid movement in the exchange rate has pulled the usual jaw of BoJ and Japanese Ministry of Finance (MOF), but apart from strong rhetoric, it is unlikely that we will see any intervention with the aim of supporting the battered yen. On Thursday, while the MoF said the yen’s decline was “extremely critical,” BoJ Governor Kuroda reiterated that a weak yen is good for the Japanese economy.
BoJ focused on controlling yield curve
The BoJ does not want to see the yen continue to fall, but its focus is to stimulate the economy, not the exchange rate. We’ve seen the BoJ show its determination to protect its yield curve control as the Bank continues to offer to make unlimited purchases of 10-year JGPs to limit yields by 0.25%. The BoJ will continue its ultra-accommodative policy, although this will make it out of sync with the Federal Reserve and other major central banks, which are tightening policy to fight soaring inflation. If the price for this policy is falling yen, so be it, in the minds of BoJ politicians.
If there is a “line in the sand” when it comes to the value of yen, any intervention is likely to come from the MoF rather than the BoJ. After decades of deflation, Japan is finally experiencing some inflation, but at much lower levels than in the United States and elsewhere. Until inflationary pressures rise, the BoJ will have a free hand to continue its ultra-loose policy, and that could spell more problems for the yen.
USD / JPY Technique
- USD / JPY broke below support at 129.89. Later, there is support at 1.2807
- There is resistance at 1.3122 and 1.3304