USD/JPY surged to a fresh 82-month high on Monday, supported by inexorably rising US Treasury yields.
US 10-year bond yields soared to over 2.77%, or their highest level in three years, and exceeded China’s government bond yields for the first time since 2010, as the Federal Reserve prepares to hike interest rates sharply.
Markets have now priced in 50 basis point interest rate hikes at Federal Reserve’s policy meetings in May and June.
BofA’s US economist Ethan Harris even forecasts 0.5% rate hikes at each of the upcoming three FOMC meetings and a cycle peak around 3.25%-3.50%.
“If inflation looks like it is heading below 3%, then our current call should be hawkish enough,” BofA’s Harris wrote in an investor note, cited by Reuters.
“Conversely, if inflation gets stuck above 3% then the Fed will need to hike until growth drops close to zero, risking a recession.”
Investors now focus on the US CPI inflation numbers, due to be released tomorrow, with a consensus of analyst estimates pointing to an 8.5% surge in annual consumer prices.
Meanwhile, the Bank of Japan remains committed to maintaining an ultra-loose monetary policy and bond yields close to zero.
“There’s nothing there to frighten people out of dollar/yen positions,” National Australia Bank’s head of foreign exchange Ray Attrill, said.
As of 7:55 GMT on Monday USD/JPY was gaining 0.74% to trade at 125.20. Earlier in the trading session the major Forex pair climbed as high as 125.44, which has been its strongest level since June 8th 2015 (125.68).
USD/JPY has appreciated 3.03% so far in April, following another 5.82% gain in March.
Daily Pivot Levels (traditional method of calculation)
Central Pivot – 124.21
R1 – 124.75
R2 – 125.22
R3 – 125.76
R4 – 126.31
S1 – 123.74
S2 – 123.19
S3 – 122.72
S4 – 122.25