Another week has meant more losses for the Japanese yen, as USD/JPY punched above the symbolic 130 line for the first time in 20 years. How badly is the yen doing? The currency last posted a winning week in February, and USD/JPY has soared 6.86% in the month of April. Not a good report card.
The yen’s downswing has been sharper than expected, as USD/JPY has broken through resistance at 130 much more quickly than expected. The rapid movement in the exchange rate has drawn the usual jawboning from the BoJ and Japan’s Ministry of Finance (MOF), but aside from strong rhetoric, it’s unlikely that we’ll see any intervention with the aim of propping up the battered yen. On Thursday, while the MoF said that the yen’s descent was “extremely worrying”, BoJ Governor Kuroda reiterated that a weak yen was good for Japan’s economy.
BoJ focused on yield curve control
The BoJ doesn’t want to see the yen continue to plummet, but its focus is on stimulating the economy, not on 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 in order to cap yields at 0.25%. The BoJ will continue its ultra-accommodative policy, even though this will put it out of sync with the Federal Reserve and other major central banks, which are tightening policy in order to combat soaring inflation. If the price for this policy is a falling yen, so be it, in the minds of BoJ policymakers.
If there is a “line in the sand” when it comes to the yen’s value, 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 US and elsewhere. Until inflationary pressures increase, the BoJ will have a free hand to pursue its ultra-loose policy, and that could spell more trouble for the yen.
USD/JPY Technical
- USD/JPY has broken below support at 129.89. Next, there is support at 1.2807
- There is resistance at 1.3122 and 1.3304
