BREAKING: USD/JPY RALLIES SHARPLY TO FRESH HIGHS, EYES ON 137.00

There was a positive tone to markets on Friday The S&P 500 was up 0.8% and the Nikkei has rallied in the open and USD/JPY has followed suit, rising 0.34% so far to fresh highs for April of 136.77.

The Bank of Japan kept its easing policy on Friday and the Yen has weakened to a 7-week low against the US Dollar as the BoJ decision re-ignites emphasis on US Treasuries and the Federal Reserve.

The BoJ kept monetary policy unchanged and said it would “patiently” continue with monetary easing. The members voted 9-0 to maintain its policy balance rate at 0.1% and keep its 10-year JGB yield target at about 0%. At the same time, the BoJ cut its 2023 Japan Gross Domestic Product estimate to 1.4% from a previous estimate of 1.7% and raised its 2023 core Consumer Price Index estimate to 1.8% from 1.6%. Meanwhile, the BoJ scrapped its forward guidance on interest rates and said it would patiently continue with monetary easing. Also, Governor Kazuo Ueda said the Japanese economy faces a bigger risk from premature tightening than from a delay.

´´While giving BoJ more flexibility, we continue to think that a move in YCC is not that far off. A June move is probably too early now, but a shift later in H2 2023 still looks likely,´´ analysts at TD Securities explained. 

´´While the 1-1.5y time frame for the BoJ review is much longer than expected, it is not clear that this will be overwhelmingly bearish for the yen.´´

´´USD/JPY extended its upward momentum into Ueda's press conference, but we would expect strategic interest to fade into 137 (~200dma).´´

´´This market is asymmetric with a preference to hold on to a receiver bias in the US. We have also seen tests into 3.60% in US10s as a solid point to fade. It's not obvious that the BOJ will remain idle for 1-1.5 years on YCC. But the Fed is very likely going to be cutting then,´´ the analysts added.

In data, meanwhile, Japan's March Industrial Production fell -0.7% YoY, a smaller decline than expectations of -1.2% YoY. Retail Sales climbed  0.6% MoM, stronger than expectations of 0.3%. Japan Tokyo Apr CPI ex-fresh food and energy rose 3.8% YoY, stronger than expectations of 3.5% YoY and the biggest increase in 41 years.