A rise in Treasury yields and solid US labor data on Friday boosted the dollar, which climbed against the basket of major currencies.
The yen fell to a fresh 24-year low after Japan’s ruling coalition expanded its majority in Sunday’s upper house election. Investors interpreted the result as an upcoming wave of super-easy monetary policy.
USDJPY gained 0.9%, breaching the closely watched 137 level. Bank of Japan Governor Haruhiko Kuroda stated on Monday that he wouldn’t hesitate to add monetary stimulus if needed to boost the stuttering economy.
However, the election outcome reflects public support for Prime Minister Fumio Kishida, who adheres to a dovish monetary policy and makes it clear that rising inflation in Japan isn’t as critical for the local population as overseas.
With the BOJ keeping interest rates pinned to the floor even as foreign ones climb, the yen has sunk over 16% against the greenback this year. According to data compiled by Bloomberg, the currency is just a hair’s breadth away from its worst drawdown ever.
What about the USD?
The US dollar may remain expensive until the risks around elevated global inflation, European energy security, and China’s growth outlook have been resolved. Moreover, the breakout of the 107.50 resistance level opens the way to 110.50 for the US dollar index, which is a 2.8% gain. An upcoming 50 basis point rate hike by the Federal Reserve in July makes it almost inevitable.
Technical analysis
USDJPY, Daily chart
Currently, buyers are attacking the 137.50 resistance, the 261.8 Fibonacci level. The breakout of this zone opens the way to 144.00, the highest ratio since 1998.
