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With the USD/JPY sitting at historic highs and touching the psychologically important level of 150 at the end of last week, markets are waiting to see if there is likely to be any intervention today from the Bank of Japan (BOJ). Today, we see their two-day policy meeting concluding, culminating in their interest rate decision and, more importantly, the subsequent press conference due late this afternoon.
The pullback in the USD/JPY pair we saw yesterday—subsequent to a report—seems to be pricing in the possibility that the Bank of Japan is considering tweaking its yield curve control policy to allow the 10-year Japanese government bond yield to rise above 1%. This dropped the price to 148.81 against the USD, which is its lowest level since October 17th; similar strength was seen in other Yen crosses as well.
Some of this was due to general USD weakness throughout the day, but there is no doubt that the reporting of the bond yield intervention impacted significantly. Yen bears will point to the reality that this has been tried before, only to see the resilience of the U.S. economy and increasing U.S. treasury yields, which, in essence, appear to ignore any intervention and result in little impact beyond that of a short-term blip in what has been a significant and prolonged uptrend.
Additionally, the USD will, of course, be impacted by the Fed meeting, which starts today; the narrative continues to be hawkish, suggesting again that any BOJ intervention’s price impact may be short-lived against the USD.
Irrespective of what happens later in the week and in the medium term, traders should prepare for an interesting and high-risk ride with any JPY cross trade today.
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