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Japanese 10-year Bond Yield Nears Seven-and-a-half-year High

1/16/2023 10:10 AM

The USD/JPY pair shows mixed dynamics, consolidating near 127.65 and trying to develop a corrective impetus after a sharp weakening at the end of last week, as a result of which the dollar updated the lows of May 2022.

The reason for a new wave of sales of the US currency was the publication of December data on consumer inflation in the US, which corrected from 7.1% to 6.5%, raising the prospects for easing the pace of monetary tightening by the US Federal Reserve at the first meeting of this year, which will be held on January 31 and February 1. It is expected that the regulator will raise the interest rate by 25 basis points, and not by 75 basis points, as it was before.

In turn, the Bank of Japan is only preparing for the transition to a "hawkish" rate. At the moment, experts suggest that a fundamental change in the vector of monetary policy is most likely to happen by the spring of this year. Meanwhile, 10-year government bond yields rose above 0.54% on Friday for the first time in seven and a half years. Investors are actively selling bonds amid information that the Bank of Japan may revise its yield curve control (YCC) policy and then tighten monetary stimulus to curb inflationary pressure on the economy. Against this background, the regulator announced two rounds of emergency purchases of government bonds totaling about 1.8 trillion yen, thereby stabilizing the market situation. Now the bonds are at the usual levels of 0.50%. During the December meeting, the regulator allowed the yield of 10-year government bonds to fluctuate in the range from -0.50% to +0.50%, although initially it fluctuated between -0.25% and +0.25%.

Bollinger Bands in D1 chart demonstrate a stable decrease. The price range is expanding; however, it fails to catch the surge of last week's "bearish" sentiments. MACD is going down preserving a stable sell signal (located below the signal line). Stochastic retains a steady downtrend but is located in close proximity to its lows, which indicates the risks of oversold US dollar in the ultra-short term.

Resistance levels: 128.00, 129.00, 130.00, 131.00. | Support levels: 127.00, 126.34, 125.60, 125.00.

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