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USD/JPY Maintains Intraday Profits Above the 131.00 Benchmarks, Highest Point Since 2002

Policy Divergence Gives Support to Pair

The USD/JPY currency pair stuck to its bidding tone throughout the course of the early European session. It was observed to be trading in the vicinity of the 131.15 to 131.20 area, which is just some points under the new twenty-year high point.

USD/JPY price chart. Source TradingView

The increasing divergence in the monetary policies of the US Federal Reserve and the Bank of Japan is now a major factor that aids the USD/JPY pair in the process of gaining sufficient traction for the third day in a row. The market’s conviction that the Federal Reserve is going to take drastic measures to fight inflation and bring it firmly in control.

The market has been pricing in up to 200 basis point interest rate increases for the rest of the year. That there would be a more aggressive monetary policy by the US Federal Reserve is a factor that supports the increase seen in the US Treasury bond yields. 

The yield on the ten-year government bond has risen to the highest point it has seen since the month of November 2018. It is this increase that took the US Dollar to a twenty-year high. It, thus, became an encouragement to the pair’s bullish traders and served as the needed tailwind to the USD/JPY currency pair.

More Appreciation Before the End of the Year

Meanwhile, in Japan, the Bank of Japan is also sticking to its vowed plan to keep buying unlimited bonds in order for it to keep the almost zero increase in interest rates. The central bank promises to keep up with its loose monetary policy. The overshadowing risk-off mood in the market gave considerable support to the Japanese Yen as a safe-haven asset and put a lid on more gains for the pair of the US Dollar and Japanese Yen.

However, the basic background gives support to the possibility of more appreciation in the short term. Therefore, any dip that occurs is likely to be seen as a purchasing opportunity and become quite limited. But then, some economists expect the price of spots to grow toward the 135 area by the end of the year.

Financial experts at Nordea said that in 2002, the USD/JPY pair reached a top of 135. They, therefore, expect it to move in that direction again by the end of 2022.

Currently, there is no significant economic data to move the market that are due for publication in the United States. That leaves the USD/JPY pair in the hands of the US Dollar and its attendant price dynamics. 

Aside from that, market players are expected to take a cue from the general market risk impulse to take near-term trading opportunities. Attention will now be on the coming consumer inflation report from the US on Wednesday.

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