AUTHOR: Amar – Technical Analyst

USD/JPY is up 0.24% during the session during the tight market conditions over the holiday, and has so far ranged from a low of 126.32 to a high of 126.73. The US dollar rose to a two-decade high against the yen last week as further hawkish comments from Federal Reserve officials reinforced expectations of a faster US economy’s policy tightening. According to New York Fed’s President John Williams, that a half-point rate hike next month was a reasonable option, another sign that even more cautious policymakers are agreeing in line with faster monetary tightening.

At first glance, it looks like the yen could be in for more of the same in the second quarter. One of the main reasons for the JPY’s weakness is likely to be the growing policy divergence between the Bank of Japan and its major counterparts. Aside from the Swiss National Bank, the BOJ remains one of the more dovish G10 central banks. Central banks have reacted to rising global inflation, which seems to be taking place almost everywhere except Japan. In February, Japan’s headline CPI was 0.9%, compared to 7.9% for the United States.

Japan’s headline inflation rate could top 2% in May. In this case, is the central bank likely to adjust its policy? Probably not. The BOJ may wait for evidence of continued strong CPI data before changing course. In addition, the central bank did nothing when inflation briefly exceeded its previous target. Without a market crash, the future path for the yen is likely to remain difficult.