Forex Market: USD/JPY at over 79-month high after BOJ intervention aimed to suppress bond yields

USD/JPY gained more than 1.3% on Monday and touched highs not seen since August 2015 after the Bank of Japan intervened to prevent government bond yields from surging above its target.

At the same time, rising US Treasury yields drove the US Dollar higher against a basket of six major peers. The Dollar Index was up 0.40% on the day to 99.200.

US 10-year Treasury yields rose to 2.5567%, or a level unseen since May 2019, on investor expectations of an aggressive string of rate increases from the Federal Reserve.

Earlier on Monday the Bank of Japan made two offers to purchase an unlimited amount of government bonds with maturities of over 5 years and up to 10 years, as it seeks to prevent a surge in global interest rates from driving Japanese bond yields higher.

“The market sees monetary policy divergence between the U.S. and Japan as the key driver of dollar-yen, so in contrast to the hawkish Fed comments recently, the (BOJ’s action) gives the impression that the BOJ remains dovish, and that’s leading to a higher dollar-yen,” Shinichiro Kadota, senior currency strategist at Barclays in Tokyo, was quoted as saying by Reuters.

“I think the risk is still to the upside in the near term, especially if this monetary policy divergence story stays intact. But the speed has been quite fast and it does seem a little overheated, so if we see any contrary headlines, we could see some correction as well,” Kadota said.

As of 8:03 GMT on Monday USD/JPY was gaining 1.51% to trade at 123.93. Earlier in the trading session the major Forex pair climbed as high as 124.01, which has been its strongest level since August 20th 2015 (124.16).

USD/JPY has appreciated 7.80% so far in March, following a 0.16% dip in February.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 121.90
R1 – 122.62
R2 – 123.15
R3 – 123.88
R4 – 124.60

S1 – 121.36
S2 – 120.64
S3 – 120.11
S4 – 119.57