The US dollar fell against the Japanese yen this morning, Tuesday, to the level of 145.593 at the peak of the declines at around 8:30 GMT, after reaching the level of 146.400 at the peak of Monday’s highs.
These declines follow Japanese core CPI figures for July which grew by 3.3% year-on-year, beating expectations of 2.9%.
We also saw BoJ Governor Kazuo Ueda meeting with Prime Minister Fumio Kishida who didn’t discuss the recent exchange rate volatility while the central bank maintained its very ultra-loose policy despite rising inflation.
This news comes with the market’s speculation of the Bank of Japan’s intervention in the currency market, as happened in September of last year, to moderate the volatility of the yen exchange rate, after the dollar yen reached its highest level since last November.
These continued declines in the Japanese yen came after the notable moves in the Japanese and US bond markets. After Ueda talked about the Bank of Japan easing its grip on 10-year yield and allowing it to exceed the upper limit of 0.5%, it seems that the markets have become more focused on the spread between US and Japanese bond yields.
While the Japanese bond yields for ten years continue to rise to the highest levels since 2014, reaching 0.672%. On the other hand, as well, we have seen the 10-year US Treasury yield continue to rise to the highest levels from 2007 to 4.360. While the spread between the returns of US Treasury bonds and Japanese government bonds for ten years reached the highest levels since last November, reaching 3.689% yesterday.
Also in the Japanese bond markets, we saw today the decline of the iShares Core Japan Government Bond ETF (2561), which tracks Japanese government bonds performance, to 2470 yen, which is the lowest level since last February.
As for the futures markets, and according to the latest Commitments of Traders (COT) report, which provides figures on futures holdings in the US markets, we have witnessed a continued increase in the number of open interests for futures contracts for the Japanese yen for the third week in a row, to 247,954 positions on the 14th of August. While the ratio of the number of all reportable long positions for futures contracts to the number of open interests was 0.9, which is the highest since July 31.
I believe that the rise in the number of open interests in conjunction with the percentage of long positions reflects more anticipated momentum for the Japanese yen from investors in the markets, in light of the recent developments.
I also believe that the rapid rise in bond spreads in conjunction with the Bank of Japan maintaining its accommodative policy despite the fact that inflation continues to rise and inflation in the United States remains far from its targets, in addition to the uncertainty ignited by the decline in the Chinese economy and the turmoil in the real estate market, may constitute more pressure on the Japanese yen.
Speaking of inflation in the United States, we had seen a series of economic figures indicating the possibility of inflation remaining high for a longer period than expected, which may be followed by the Federal Reserve keeping interest rates at record levels for a longer period than expected, which may continue to pressure to raise bond yields and the Japanese yen consequently to fall. This week, all eyes will be on Jerome Powell’s speech at the Jackson Hall symposium on inflation, interest rates, and growth.
On the technical level, and on the daily time frame, the USD/JPY will continue to try to breach the main resistance area between 148.406-146.400. On one hand, the failure to breach and the reversal of the bullish trend may return the sellers’ attention to the bottom of the ascending channel, along with 141.647. Also, a breach below those previous lines may divert attention towards 138.769 as well. On the other hand, a breach above the previous resistance area and above the ascending channel line might divert attention towards more higher levels at 150.148-151.943.