Japanese Yen Update – USD/JPY Struggles Despite Record BoJ Bond Buying

USD/JPY Price and Chart Analysis

• Bank of Japan bond splurge continues.
• USD/JPY may be running out of steam.

The Bank of Japan (BoJ) is buying unlimited about of JGBs in a renewed effort to cap 10-year government bond yields at 0.25%. The central bank’s bought a record Yen14.8 trillion in June, the largest monthly amount in over 20 years. According to an article in Nikkei Asia citing QUICK data, the Bank of Japan holds Yen 514.9 trillion on a face value basis of long-term government bonds, 50.4% of the outstanding total.

While 10-year JGB yields remain anchored around 0.25%, the US benchmark yield is currently moving in a short-term range between 3.00% and 3.50%. US Treasury yields are under pressure of late as financial markets begin to price in a recession in the US in 2023, leading to interest rate cuts at the back end of the year. This recession re-pricing is starting to show itself in the US dollar chart.

US Dollar (DXY) Daily Price Chart – June 28, 2022

The daily USD/JPY chart is starting to show signs of exhaustion. The recent double top around 136.72 needs to be broken convincingly to allow the pair to move towards 140, a level at which the market expects the Bank of Japan to verbally intervene to try and stem a further rise in USD/JPY. If the recent double top does hold as resistance, then a drift lower for the pair back towards the 131 area is likely but a move below here will prove difficult if the BoJ continues to buy unlimited amounts of JGBs. In this scenario, USD/JPY may well set up a trading range that traders can take advantage of in the coming weeks.

USD/JPY Daily Price Chart – June 28, 2022

Retail trader data show 26.28% of traders are net-long with the ratio of traders short to long at 2.81 to 1. The number of traders net-long is 6.06% higher than yesterday and 1.33% lower from last week, while the number of traders net-short is 2.02% higher than yesterday and 7.89% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/JPY prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current USD/JPY price trend may soon reverse lower despite the fact traders remain net-short.

What is your view on the Japanese Yen – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.