The USD/JPY pair rallied over 250 pips from the daily low and jumped to its highest level since March 10, around the 135.85 area during the early part of the European session on Friday.
The Japanese Yen (JPY) slumped across the board after the Bank of Japan (BoJ) announced its policy decision, which, along with resurgent US Dollar (USD) demand, prompted aggressive short-covering around the USD/JPY pair. As was widely expected, the Japanese central bank left its ultra-loose policy settings unchanged and made no tweaks to its yield curve control (YCC) by a unanimous vote.
The JPY selling picks up pace in reaction to the BoJ Governor Kazuo Ueda’s dovish remarks, noting that it will be appropriate to continue monetary easing to achieve the 2% inflation target. Speaking at the post-meeting press conference, Udea added that the risk from tightening too hastily is more significant than monetary policy falling behind the curve and that Japan’s inflation will likely slow below 2% in the latter half of the year.
The USD, on the other hand, climbs to a fresh weekly high and continues to draw support from firming expectations for a 25 bps lift-off at the next FOMC policy meeting in May. The bets were reaffirmed by Thursday’s US macroeconomic releases, which indicated persistent price pressures and that the US job market remains healthy despite an economic slowdown. This is seen as another factor pushing the USD/JPY pair.
Apart from this, the solid intraday rally could be attributed to some technical buying above the 135.00 psychological mark, coinciding with the March downfall’s 61.8% Fibonacci retracement level. This might have already set the stage for a further appreciating move, though bulls might wait for the release of the US Core PCE Price Index – the Fed’s preferred inflation gauge – later this Friday.