USD/JPY - above 103.00, eyes trend line hurdle

USD/JPY pair extended gains to 103.17 and is now few pips short of the key descending trend line resistance coming from May 30 high and July 21 high.

Reversing Japanese influence on bond yields

Greg Gibbs, Director at Amplifying Global FX Capital says, “We may now be in the process of reversing this influence from Japan.  If the BoJ buys less long-term bonds and the JPY weakens, perhaps in response to a lower NIRP, both developments would tend to put upward pressure on Japanese and global yields.”

BOJ is seen trimming purchases of long duration bonds next week, while moving rates further down into the negative territory. Markets begin pricing-in the trimming of long bond purchases last week, due to which yields on ultra long bonds spiked to near 6-month highs. This was followed by a sell-off in long bond yields across the globe.

Gibbs adds, “Perversely, we may find that higher longer-term yields in Japan, spilling over to higher long-term yields abroad may encourage further gains in USD/JPY, producing a reinforcing rally in the USD/JPY and global bond yields.”

USD/JPY Technical Levels

Breach of descending trend line hurdle of 103.46 preferable on day end closing basis would open doors for 104.32 (Sep 2 high) and 104.73 (100-DMA). On the lower side, failure to hold above 103.06 (Sep 9 low) could yield re-test of 50-DMA level of 102.68 under which the spot could target 102.11 (61.8% of Post Brexit low – high).