The Japanese Yen (JPY) is strengthening against the US Dollar (USD), surpassing 161.00 during European trading. This comes as the Bank of Japan (BoJ) consults with bond market participants on how to reduce or end its bond-buying program, a move that could signal the end of a decade-long loose monetary policy.
Meanwhile, the US Dollar Index (DXY) slightly declined on Monday following the outcome of the second round of French elections. However, market focus is now shifting to Fed Chairman Jerome Powell’s testimony on the semiannual Monetary Policy Report to the US Congress. While no new announcements are expected, any hints towards a September interest rate cut could significantly impact markets.
Key Market Developments:
- Major banks predict reductions of 1 to 3 trillion Yen in bond buybacks soon.
- A heat wave in Japan is straining the energy grid.
- The BoJ survey reveals a wide range of options for bond-cutting.
- Japanese equities are surging, while European equities are struggling.
- The CME Fedwatch Tool indicates a 73.6% probability of a rate cut in September.
- The Overnight indexed Swap curve for Japan shows a 60.1% chance of a rate hike on July 31.
- The US 10-year benchmark rate is trading near 4.30%.
- The 10-year Japan Treasury Note (JGB) is trading around 1.09%.
USD/JPY Technical Analysis:
The Japanese Yen has failed to capitalize on the momentum from last week, as a retreat towards 160.00 against the US Dollar pushed the Relative Strength Index (RSI) out of the overbought area. The BoJ’s consultations with bond market participants are increasing pressure for a rate hike by the end of July.
The pivotal level near 160.32 is acting as support, while 162.00 remains the level to beat for a new multi-decade high. If the current bounce fails and tests the 160.32 support again, the 55-day Simple Moving Average (SMA) at 157.37 will be the next support to watch.