Apr 15, 2022 11:52AM ET
By: AnalysisWatch
The USDJPY is trading higher again today, breaking through the June 2015 high at 125.86 and Wednesday's high at 126.31. This move takes the price to its highest level since May 2002, almost 20 years ago (see weekly chart above).
My USDJPY charts no longer have history. I have the May 6th week high at 128.920 and that's it (see chart above). There is still some room between the current price of 126.46 and the high of 128.92, but not much.
The decisive factor for the upward trend is the interest rate policy of the central bank.
The Fed intends to make a series of tightening moves to return to (at least) a neutral rate of around 2.50% (and may need to go higher). The Fed is expected to raise the rate by 50 basis points at its next meeting in March, and the market expects another 50 basis points in June (the current rate is 0.50%).
In the meantime, the BOJ is content to maintain the status quo and is even trying to limit movements in its yields.
This dynamic has led to a sharp increase in yield spreads between U.S. and Japanese debt.
Looking at the 10-year bond yield spread below, the spread between U.S. 10-year yields and Japanese 10-year yields has widened from about 153 basis points on March 7 to over 250 basis points. Note that the yield spread was measured at its 100-day moving average in early March before moving higher.
Over the same period, the USDJPY moved from around 114.82 to today's high of 126.68, up 1186 points (10.32%). Also note that the USDJPY was measured at its 100-day moving average in early March before moving higher. These MAs usually provide traders with risk and trend-setting clues.
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