USD/JPY battles 129.00, pauses upsurge post-BOJ’s intervention

• USD/JPY renews 20-year highs at 129.40 but corrects on BOJ’s JGBs operation.
• Fed/BOJ monetary policy divergence will continue to play out.
• Focus shifts to the US Housing data and Fed’s Beige book for fresh impulse.

USD/JPY is trading with moderate gains above 129.00, as bulls look to fight back control after the Bank of Japan’s (BOJ) bond market intervention.

The pair extended the previous rally and renewed 20-year highs at 129.40 before the BOJ’s operation knocked down the rates to daily lows of 128.88.

The BOJ said that it will conduct an unlimited fixed-rate purchase operation for Japanese Government Bonds (JGBs), as the yields opened near 0.25%, threatening the central bank’s upper cap.

The pair, however, managed to quickly recover ground above 129.00, as the US dollar holds onto the recent gains amid a 2% rally in the US 10-year Treasury yields, as of writing. The US rates continue to push higher amid faster Fed rate hikes expectations, with the real rates turning positive for the time first time in two years.

Meanwhile, the BOJ is likely to stick with its ultra-loose monetary policy while slightly raising its inflation forecasts. The Japanese central bank believes that the weakness in the yen is still positive for the economy on the whole, despite the recent sharp declines. The disparity between the Fed and BOJ policy stance keeps the sentiment around the yen undermined.

Attention now turns towards the US Housing data and the Fed’s Beige Book for fresh trading impetus, as investors digest the comments from Chicago Fed President and FOMC member Charles Evans.

“Evans said he is comfortable with a rate hike path this year that would see two 50 bps rate rises and get rates to 2.25-2.50% by the end of the year,” FXStreet’s Analyst Joel Frank noted.

USD/JPY: Technical levels to consider