The rise in usd/JPY was largely driven by hawkish expectations from the Federal Reserve
The strength of the USDJPY can actually be seen from 2020. The dollar index fell 6.8 percent last year, but the dollar fell less than 5 percent against the yen for the full year, reflecting the fact that the yen is the weakest of the non-U.S. currencies that rose against the dollar.
Entering this year, the Fed and the Bank of Japan policy expectations diverge, the United States due to the economic recovery is larger and inflation rises faster, the market pricing the Fed to cut easing, while at the same time Japan is the same for a thousand years of extreme easing. According to the latest developments, the Fed has made it clear that it will cut the scale of bond purchases during the year, and the Attitude of the Bank of Japan is that "reducing easing is not an option for the Bank of Japan".
It is this divergence of policy expectations and stances that has fueled the movement to sell yen and buy the dollar so far this year.
Another route for U.S. inflation and hawkish Fed expectations to boost the dollar/yen is the spread, which, for example, has risen from a low of 0.5 percent last year to a high of 1.7 percent this year and is now at 1.55 percent. Widening spreads allowed the selling of yen to buy dollar bonds to enjoy the dual benefits of spreads and appreciation, exacerbating the rise of usd/jpy.
In addition, from the Japanese base currency data, it can also be seen that the yen liquidity release of the Bank of Japan in 2021 is greater than that in 2020. With a combination of internal and external forces, USDJPY rose from 103 at the beginning of this year to the current level of more than 113.
USDJPY Technical Analysis
The weekly chart shows that USDJPY officially confirmed its breach of the downward pressure line since 2016 after a period of volatility in March-August this year, followed by an acceleration of the upside in the last four weeks, and is now approaching the 2017-2018 shock high (114.00-114.50 area). The next period of time is recommended to examine usd/jpy's test of this resistance zone, which, if it can be cleared, may see room for an upside towards 118.50 (late 2016 and early 2017 high). If it falls back, pay attention to the support role of the 112.00-112.50 area.