Japanese Yen Update – USD/JPY Struggles Despite Record BoJ Bond Buying

USD/JPY Price and Chart Analysis

• The glory days of Japanese bank bonds continue.
  USD/JPY may lose momentum.

  The Bank of Japan (BoJ) is buying JGBs indefinitely in another attempt to cap 10-year government bond yields at 0.25%. The central bank bought a record 14.8 trillion yen in June, the largest monthly purchase in more than 20 years. According to an article by Nikkei Asia citing QUICK data, the BOJ holds 514.9 trillion yen (at face value) of long-term government bonds, or 50.4% of the total outstanding.

  While the 10-year JGB yield remains anchored at around 0.25%, the U.S. benchmark yield is currently trading in a short-term range of 3.00% to 3.50%. U.S. Treasury yields have been under pressure recently as financial markets begin to price in a U.S. recession in 2023, leading to a rate cut before the end of the year. This recessionary re-rating is starting to show up on the dollar chart.

US Dollar (DXY) Daily Price Chart – June 28, 2022

USD/JPY is starting to show signs of weakness on the daily chart. The near-term double top near 136.72 will require a convincing break to move towards 140, where the market expects the BOJ to intervene verbally to try to push USD/JPY to curb JPY. If the recent double top acts as resistance, the pair could retreat to the 131 area, but it will be difficult to break below if the Bank of Japan continues to buy JGBs in unlimited quantities. In this case, USD/JPY is likely to form a trading range that traders can take advantage of in the coming weeks.

USD/JPY Daily Price Chart – June 28, 2022

Data from retail traders shows that 26.28% of traders are net long, with a short to long ratio of 2.81 to 1. Net longs increased by 6.06% from yesterday and decreased by 1.33% from last week, while the number of net shorts increased by 2.02% from yesterday and decreased by 7.89% from last week.

We generally think that the sentiment of the crowd is contrarian, and the fact that traders are net short suggests that USD/JPY may continue to move higher. Still, traders are less net short than yesterday and last week. The recent change in sentiment warns that the current USD/JPY price trend could soon reverse to the downside, although traders remain net shorts.