May 18 (Reuters) – Tokyo players remain bullish on the dollar and USD / JPY, despite recent weakness in both. Given the near inevitability of rising US yields and wider interest rate spreads between Japan and the US, sights are set on a possible surge. 110.00 and test of the year high at 110.97 on March 31.
While the US Federal Reserve has signaled an extended period of steady policy, the chances of the Fed stepping in earlier than the Bank of Japan to cut bond purchases and exit quantitative easing are almost 100%.
Inflation has recently seen a pop in the United States. But seen as transient by some, including Fed officials, the trend is higher , especially given reports of labor shortages spreading across the United States
On the other hand, Japanese price gains were limited to wholesale prices, and even it is not yet a trend. Q1 GDP data is very weak on Tuesday also suggest a longer one BOJ hold on.
For the USD / JPY to break up 110 and 111, the Japan-US rate differential should test March 30 high of 167.60 basis points. Decisive breakout could see USD / JPY testing 111.71 high March 2020, the high of 112.23 in February 2020 and possibly even the high of 114.55 in October 2018. Previous comment . See also .
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Monthly USD / JPY: https://tmsnrt.rs/33VXjXu
10-year interest rate differential between Japan and the United States – monthly: https://tmsnrt.rs/3ytLxlw
(Haruya Ida is a market analyst at Reuters. The opinions expressed are her own. Edited by Sonali Desai)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.