USDJPY Soars to A Fresh Six-Year High on Renewed BoJ Bond Buying

USD/JPY Price and Chart Analysis

• Japan’s loose monetary policy continues to weaken the Yen.
• Soaring US bond yields adds further fuel to the USDJPY move.

The Bank of Japan announced today that it would buy an unlimited amount of certain Japanese Government Bonds (JGBs) with a maturity of up to ten years at 0.25% in an effort to stop rising global yields pulling yields higher. The JGBs involved, #363, #364, and #365 will be purchased up to, and including, March 31and in unlimited size. The announcement highlights the different path’s being taken by Japan and a host of other major economies who are looking to not just halt their pandemic bond purchases but to begin to unwind them by letting them mature, with no re-investment, or by outright sales. USDJPY has added the best part of ten big figures so far in March and continues to make fresh six years highs ever since 119.00 was broken.

USD/JPY Daily Price Chart – March 28, 2022

We need to look at a longer-term USD/JPY chart to get a picture of what may happen next. The mid-June 2015 high at 125.858 is the next target and this may hold as the rally is starting to look overstretched. If we look at US government bond yields, the 2-year UST now yields around 2.40%, up from 0.73% at the start of the year, while money markets are now pricing more than 200 basis points of rate hikes this year. In addition, markets are now looking for the Fed to increase rates in 50 basis point clips at the next two FOMC meetings.

This Fed-uber-hawkishness/BoJ dovishness justifies the current USDJPY level but leaves little in the way of room for further, substantial appreciation. It looks likely that USDJPY will soon run into hefty resistance just under 126.00.

USD/JPY Monthly Price Chart – March 28, 2022

Retail trader data show 24.03% of traders are net-long with the ratio of traders short to long at 3.16 to 1. The number of traders net-long is 1.12% higher than yesterday and 12.75% higher from last week, while the number of traders net-short is 4.49% lower than yesterday and 0.99% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/JPY prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current USD/JPY price trend may soon reverse lower despite the fact traders remain net-short.

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