The Japanese yen has been the worst-performing G10 currency since March amid the ultra-loose monetary policy stance adopted by the Bank of Japan. This has resulted in a further widening of the Japan-US interest rate differential. Apart from this, the strong rally in the global equity markets weighed heavily on the safe-haven Japanese yen and acted as a tailwind for the USD/JPY pair.
The risk-on impulse, along with expectations that theFedwould retain its aggressive policy tightening stance, pushed the US Treasury bond yields higher. This was seen as another factor that impressed bullish traders and provided an additional lift to the USD/JPY pair. The strong move up could also be attributed to some technical buying above the 135.50-135.60 double-top resistance.
According to the FX Strategist at UOB Group, the strong surge in USD to a high of 136.70 came as a surprise. While overbought, the rally has scope to extend even though a clear break of 137.00 appears unlikely. Sustained strength beyond the 135.50-135.60 area would be seen as a fresh trigger for bulls and allow the USD/JPY pair to reclaim the 136.00 round-figure mark for the first time since 1998. The subsequent move up has the potential to lift spot prices towards the next relevant hurdle near the mid-136.00s.
On the downside, a breach of 135.55 (minor support is at 135.85) would indicate that the current upward pressure has eased.
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