The Dollar/Yen continues to strengthen following Friday’s strong performance. That rally was fueled by a report that showed the U.S. economy added more jobs in June and previous months than estimated. It also supported the Fed’s plan to raise interest rates at least one more time in 2017 and begin the process of trimming its massive balance sheet.
The USD/JPY is currently trading 114.144, up 0.247 or +0.23%.
The Forex pair is currently within striking distance of its May 10 top at 114.367. Based on the current upside momentum, buyers should easily take out this top and extend the rally.
With interest rates rising around the globe, the only event that could derail the USD/JPY rally is flight-to-safety buying which would increase demand for the safe-haven Japanese Yen. This is likely to occur if there is an escalation of the situation in North Korea. A steep drop in global equity markets should also send investors scurrying into the Yen.
Dollar/Yen investors should also keep an eye on the Bank of Japan. On Friday, the BOJ increased its bond-buying activity in reaction to Japanese government bonds (JGBs) yields, which had been creeping higher over the past week.
On Friday, the BOJ said it would buy an unlimited number of 10-year JGB’s at a yield of 0.110 percent, and it increased the size of its regular buying of five- to 10-year JGBs by 50 billion yen ($439.96 million) to 500 billion yen, according to Reuters.
According to recent monetary policy statements from the BOJ, the central bank has set a target of keeping the 10-year JGB yield at zero. Buying bonds through its quantitative easing program will enforce this policy.
Last week, the 30-year and 40-year JGBs touched their highest yields since February 2016, while the 10-year touched a five-month high of 0.105 percent, prompting the aggressive action by the BOJ.
Earlier today, Japan Bank Lending showed a slight increase to 3.3%. Core Machinery Orders came in well below the 1.7% estimate at -3.6%. The Current Account came in at 1.40 Trillion, lower than the 1.63T estimate and well below the previously reported 1.81 Trillion.
In terms of Japanese Yen, Japan had a current account surplus of 1,653.9 billion yen in May, the Ministry of Finance said on Monday. That missed forecasts for 1,792.8 billion yen following the 1,951.9 billion yen surplus in April.
The trade balance showed a deficit of 115.1 billion yen, missing expectations for a shortfall of 45.0 billion yen and down from the 553.6 billion surplus in the previous month.
The current account shows the difference in value between imported and exported goods, services, income flows, and unilateral transfers during the reported month.