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USD/JPY Falls Below 132.50 As The Bank Of Japan Confirms a Covert Intervention
The USD/JPY exchange rate has fallen below 132.50 as risk appetite attempts to revive amid softening US-China tensions. After massive employment gains, there is a heightened expectation that the Fed will continue to raise rates. Bond futures speculation has been substantially constrained by the active market activities of the Bank of Japan.
During the Asian session, the USD/JPY pair fell below the nearby support level of 132.50. After two days of gains, the asset is sensing selling pressure as the Bank of Japan (BoJ) confirms a covert intervention to strengthen the Japanese Yen. The market players' risk appetite has increased as a result of Vice President Joe Biden's optimistic remarks regarding US-China relations.
Monday at the White House, US Vice President Joe Biden stated, "The balloon incident does not harm US-China relations." This has added some hope to the market's overall downward momentum. After a two-day sell-off in early Asia, risk-perceived assets such as S&P500 futures exhibit some resilience. However, the yield on 10-year US Treasury bonds is higher, at 3.64 percent.
The US Dollar Index (DXY) closed Monday on a positive note and is predicted to continue optimistic ahead of Jerome Powell's speech on the Federal Reserve (Fed) on Tuesday. Powell's speech will provide hints regarding the probable monetary policy action in March. Massive new additions to the U.S. labor market have ignited the possibility of a resurgence in U.S. inflation, prompting the market to anticipate a resumption of rate hikes by the Federal Reserve.
On recent months, the US Consumer Price Index (CPI) has been in a downward trend. However, tight labor market circumstances have the potential to inject new life into inflation estimates, since a large proportion of households with higher incomes could boost consumer expenditure.
On the front of the Japanese Yen, the BoJ's opportunistic action may have been prompted by fresh concerns that more Fed rate hikes will weaken the USD/JPY in general.
The stronger-than-anticipated Japanese Labor Cash Earnings show pay inflation is effectively rising, which might force overall inflation forward. The economic data have increased by 4.8%, above both the consensus estimate of 0.9% and the previous release of 0.5%.
Meanwhile, a report from Reuters states that "the Bank of Japan's (BoJ) vigorous market operations to defend its policy band for yields have not only drained liquidity from the government bond market, but have also severely constrained speculation in bond futures."
Because the BOJ owns the majority of the so-called cheapest-to-deliver bonds that the futures contract is indexed to, traders cannot profitably short-sell the nearest three-month futures contract maturing in March, as noted by Reuters.
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