Japanese yen rebounds

The Japanese yen has managed to stem the bleeding today, as USD/JPY is trading at 121.66, down 0.54%. USD/JPY climbed almost 1% on Thursday, breaking above the 122 line for the first time since December 2015.

Yen pummelled by rate differential

March has been miserable for the Japanese yen, which is down a staggering 5.83% this month. The yen has been walloped by the US/Japan rate differential, which continues to widen. US Treasury yields have been on an upswing, with the 10-year yield rising to 2.38% on Thursday. Higher yields have been weighing on the yen while also giving some support to the US dollar. If the uptrend continues, USD/JPY could push above the 123 line and keep moving north.

The yen received some strong backup on Friday, as BoJ Governor Kuroda and Minister of Finance Suzuki both made statements in parliament aimed at shoring up the yen, which has been on a dreadful slide. Suzuki said that “Exchange-rate stability is important, and sharp volatility is undesirable,” while Kuroda stated that it was important that currency rates remain stable. The comments had their desired effect, as the yen clawed back some gains today, but I would expect these gains to be temporary, as the yen will be under strong downward pressure from a hawkish Fed and a dovish BoJ, which is a one-two punch to the guts that will likely lead to a resumption of the yen’s decline.

Governor Kuroda talked about stability in the exchange rate, but also stated that “There’s no change now to my view a weak yen is generally positive for Japan’s economy”. Perhaps Kuroda doesn’t mind a weak yen, as long as the currency doesn’t fall into a disorderly decline. If I’m an investor, and the head of the central bank is saying he likes a weak yen, that kind of comment doesn’t fill me with an iota of confidence that the yen will rebound from its massive slide.

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USD/JPY Technical

• 122.04 is a weak resistance line. Above, there is resistance at 1.2286
• There is support at 120.72 and 119.94

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