USDJPY has made its way to a fresh six-year high on renewed BoJ bond buying, as Japan’s loose monetary policy continues to weigh on the yen. The move is further fueled by rising US bond yields. In fact, the yen is expected to maintain its strong position for the foreseeable future.
The dollar has been rising for a while now, but its gains have been limited. The softer equity market tone has helped the Japanese yen’s safe-haven status. However, the wider USD/JPY spread has kept meaningful upside from materializing. The USDJPY is cushioned by the widening government bond yield differential.
The Japanese currency has been trending higher since December 2015, when it topped out at 1.2200. The yen’s value has risen since then due to rising global yields. The decision to buy JGBs with maturities up to ten years has triggered a surge in the USD/JPY, but the yen has been struggling to take advantage of it. Meanwhile, the USD’s safe-haven status has been tempered by profit-taking from its recent 16-month high. Moreover, the widening government bond yield differential remains supportive of USD/JPY.
The yen’s recent strength is also likely to continue accelerating. The late-October elections in Japan saw the ruling Democratic Party of Japan disband the lower house of parliament, and the new government, led by Shinzo Abe, increased its influence. The yen has been in decline for over two decades and the new central-bank governor is expected to take decisive steps to push the yen lower.
The announcement from the Bank of Japan has caused a stir among investors. The Japanese currency has hit a six-year high after the announcement. This is the first time in over two decades that the Bank of Japan has issued a decision to increase its bond buying program. This will continue to help the country’s economy despite the upcoming election.
The announcement pushed the USDJPY to a fresh six-year high on renewed BoJ bond buying. In addition, it was the biggest catalyst for the yen’s price rise. While the yen is currently moderately undervalued, the Japanese stock market continues to post superior growth compared to the developed world. Furthermore, the Yen’s low long-term yields have helped the Japanese yen’s price action.
The yen is expected to weaken if the U.S. tightens monetary policy. In addition, the yen’s price is more vulnerable to the dollar than the yen’s price. The yen’s value is dependent on the dollar’s strength and the dollar’s weaker yen.