- USJPY is firm at the start of the week as the greenback starts on the front foot.
- Eyes will turn to Fed speakers and the yield curve.
USD/JPY is higher by 0.24% on the session during holiday thin market conditions and has travelled between a low of 126.32 and a high of 126.73 so far. The US dollar rose to a two-decade peak against the yen last week as more hawkish comments from Federal Reserve officials reinforced expectations for faster U.S. policy tightening.
New York Fed President John Williams said on Thursday that a half-point rate rise next month was “a very reasonable option,” in a further sign that even more cautious policymakers are on board with faster monetary tightening.
Consequently, US Treasury yields resumed their climb at the end of the week following a two-day decline which underpinned the greenback. The dollar index (DXY) climbed 0.08% to 100.48,on the way to the two-year high of 100.78 reached on Thursday and ended the week 0.64% higher. Against the yen, the dollar has climbed 1.71% for a sixth straight winning week.
Meanwhile, The odds of direct FX intervention are rising, in our view, and Japanese Finance Minister Shunichi Suzuki warned on Tuesday that the government is watching yen moves and their impact on the economy “with a sense of urgency”.
”A dovish BoJ and a deteriorating Japanese balance of payments position on the back of the fossil fuel spike will keep USD/JPY bid for most of the year – and it should be nearing 130 by year-end. Probably the biggest risk to that view is that the BoJ becomes less dovish – as evidenced by it allowing 10-year JGB yields to trade above 0.25%,” analysts at ING Bank said.
As for the Fed, the week ahead will hold key speakers again. ”Fed communication will remain front and center as officials try coalesce on a message before the May meeting. We are of the view that the Fed is broadly in-sync with the move toward the vicinity of neutral by the end of 2022, with Governor Brainard supporting that view recently. Chair Powell’s remarks in an IMF panel on the global economy will get the focus of the attention,” analysts at TD Securities argued.