USD/JPY climbs to 2-day highs near 131.00

• USD/JPY extends the upside to the vicinity of 131.00.
• US yields keep marching north across the curve.
• The CB Leading Index comes next in the US calendar.

The now better tone in the greenback helps USD/JPY advance to the area just below 131.00 the figure at the beginning of the week.

USD/JPY up on dollar, yields gains

USD/JPY trades with strong gains and adds to Friday’s decent advance in response to the change of direction in the buck and the continuation of the upside momentum in US yields across the curve.

In the Japanese money market, instead, JGB 10-year benchmark yields remain in the negative territory around the 0.40% region following the release of the BoJ Minutes of the January gathering.

On the latter, Board members emphasized that the recent announcement regarding a wider YCC band did not imply any plans to start normalizing the monetary stance.

What to look for around JPY

The 3-month negative streak in USD/JPY met some initial support in the 127.20 region so far (January 16).

The pair, in the meantime, continues to track developments from the Fed’s normalization process and the opposing views from the markets – which continue to favour a pivot in the near term – and the hawkish narrative from FOMC governors, which defend a rapid move further up in rates (5%-5.25%).

In the more domestic scenario, market participants are expected to closely follow any hint from the BoJ indicating a potential exit strategy from the current ultra-accommodative policy stance and/or another tweak of the Yield Curve Control (YCC) in the next months.

USD/JPY levels to consider

As of writing the pair is gaining 0.92% at 130.75 and faces the next up barrier at 131.57 (weekly high January 18) seconded by 134.77 (2023 high January 6) and then 136.71 (200-day SMA). On the downside, a break below 127.21 (2023 low January 16) would aim to 126.36 (monthly low May 24 2022) and finally 121.27 (weekly low March 31 2022).

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