Forex Market: USD/JPY trades near two-decade highs on hawkish Fed comments, Yen reaction to BoJ Kuroda’s remarks short-lived

USD/JPY registered a fresh two-decade peak at 126.79 during the early Asian session on Monday, before comments from Bank of Japan Governor Haruhiko Kuroda and Finance Minister Shunichi Suzuki led to a swift bounce to 126.24.

Although the US Dollar was stuck in a narrow range due to the Easter holiday in many parts of the globe, the USD/JPY pair later returned to levels near 126.55-126.60, with the greenback supported by hawkish comments from Fed officials.

Last Thursday the Fed President for New York John Williams said that a 0.50% rate hike in May was “a very reasonable option”.

Fed President for Cleveland Loretta Mester also indicated interest rates should be raised quickly.

Meanwhile, Bank of Japan Governor Kuroda said on Monday that despite a weak Yen could affect corporate profits, it was not yet time to discuss any exit from the bank’s zero-rates, yield curve control policy.

Japanese Finance Minister Suzuki has said that a weak national currency is “bad” for the economy in case higher raw materials costs cannot be passed onto prices of goods sold.

According to J.P. Morgan Securities analysts Benjamin Shatil and Sosuke Nakamura, the use of the word “bad” may be considered as a change in tone.

“We have long argued that the BOJ may need to blink if yen weakness is sufficient to cause political repercussions,” the analysts wrote in a note, cited by Reuters.

“The risk to running short yen positions will be any capitulation in Kuroda’s thus-far positive assessment of yen weakness.”

The Bank of Japan is largely expected to acknowledge rising inflationary pressures at its policy meeting on April 27th-28th without taking action on interest rates.

Still, some analysts believe weaker Yen is mounting pressure on policy makers to take steps towards policy tightening soon.

As of 7:54 GMT on Monday USD/JPY was edging up 0.17% to trade at 126.57. Earlier in the trading session the major Forex pair climbed as high as 126.79, which has been its strongest level since May 17th 2002 (128.13).

USD/JPY has appreciated 4.05% so far in April, following another 5.82% gain in March.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 126.30
R1 – 126.74
R2 – 127.12
R3 – 127.56
R4 – 128.00

S1 – 125.91
S2 – 125.48
S3 – 125.09
S4 – 124.71