Japanese Bond Yields Rise to an 11-Year High Pressuring the BOJ!

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  • Japan’s 2-Year Bond Yield rises to its highest level in more than 10 years. On Tuesday, Japan’s inflation rate declined from 2.3% to 2.0% which was slightly higher than expectations.
  • Japan’s bond yields rise as investors continue to speculate that Japan will move away from their ultra-expansionary monetary policy.
  • Investors consider whether higher bond yields will support the Yen in the month of March and if the NIKKEI225 will retrace back to the previous low.
  • The US Dollar Index declines for a second consecutive day. Dollar traders will focus on today’s US Durable Goods release as well as the Consumer Confidence Index.

USDJPY – The Yen Increases in Value Against All Currencies!

The US Dollar against the Japanese Yen has been one of the only currency pairs where the Dollar has been able to gain over the past week. Whereas the Dollar in general has been struggling against most major currencies. However, this morning the Yen has risen 0.28%. This is because Japanese Bond Yields have risen, and inflation reads slightly higher than previous expectations.

Over the past week, the major resistance level which can be seen has been at 150.280, which is close to the current price. If the price breaks below this level, sell signals will continue to emerge. If the price continues to decline and form a bearish breakout, the price will also trade below the 75-bar EMA and the 50.00 level on the RSI. This would further indicate a downward price movement in the short to medium term. On 30-Minute timeframe the exchange rate has formed a bearish crossover on the Stochastic Oscillator as well as the Moving Averages. Simultaneously, the oscillator is not yet indicating an oversold price. So why is the USDJPY declining?

Investors should take into consideration that the Dollar has been depreciating for over a week even though the USDJPY has risen. Therefore, investors are considering whether the exchange rate is overbought in the short term. The US Dollar Index also trades 0.14% lower this morning and the Yen is trading higher against all currencies.  One of the reasons for the Yen increasing in value is the slightly higher inflation data.

Analysts advise the inflation rate in Japan is not high enough to support the Bank of Japan changing their policy. However, the fact the rate has not fallen as sharply as analysts previously thought supports the Yen. If the inflation rate remains stable above 2.00%, the regulator may consider switching to a more traditional monetary policy, in the second or third quarter of 2024. Also supporting the Japanese Yen are Japanese Bond Yields which are increasing to their highest level in over 11 years. The 2-Year Bond Yield has risen to 0.172% from 0.00% earlier this morning.


JPN225 – Will Higher Yields Halt the NIKKEI225’s Bullish Trend?

The JPN225 has risen by almost 18% in 2024 so far and has been one of the best performing indices globally. The JPN225 has also outperformed US equities. However, investors are taking into consideration whether the JPN225 may retrace as the Yen gains. If investors use the Fibonacci levels to assist with what a retracement may look like, the indicators point to the assets declining to 37,863 as a minimum or to 35,010 as a maximum.

Alternatively, investors can use price action which indicates any retracement will on average be an 8.00% decline. Now, the index is yet to obtain a strong sell signal from indicators, however, the price is forming lower lows and highs which is a negative. In addition to this, the price has also recently been overbought on the RSI and has formed divergence signals. Therefore, investors are taking into consideration a possible retracement as Japanese Bond Yields rise and the Bank of Japan considers higher interest rates.

Michalis Efthymiou

Market Analyst

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