• The Japanese yen hit a 20-year low against the dollar on Tuesday backed by high U.S. Treasury yields.
• Contrast in monetary policy between a hawkish Fed and an dovish Bank of Japan strengthens USD against JPY.
• Fed’s James Bullard said inflation is “far too high.”

The dollar rose against the Japanese yen during Tuesday trading session as the greenback set its latest 20-year high on the yen supported by high U.S. Treasury yields and expectations of good economic data.

It is worth noting that US dollar has risen 4.5% on the Japanese currency so far this month, which would be its second-biggest monthly percentage gain since 2016 behind March’s 5.8%. The greenback also climbed against Japanese currency, highlighting the contrast in monetary policy between a hawkish Fed and an ultra-dovish Bank of Japan.

The US dollar is strong supported by the expectation  have of an aggressive rate hike along with hawkish guidance for the rest of the year. St. Louis Fed President James Bullard on Monday stated that the Fed needs to elevate the interest rates to 3.5% and that too by the end of the year. A higher-than-expected hawkish gesture by the Federal Open Market Committee (FOMC) member James Bullard has favored the greenback.

St. Louis Fed President James Bullard said that inflation is “far too high” while repeating its case of hiking rates to 3.5% by the end 0f 2022. He also added that the Unemployment Rate can continue to fall even with aggressive rate hikes, repeating his view that now at 3.6%, unemployment will go below 3% this year.

On the other hand, the BoJ has repeatedly said that it remains ready to use powerful tools to avoid long-term interest rates from rising too much. In fact, the Japanese central bank last month offered to buy unlimited 10-year Japanese government bonds to defend the 0.25% yield cap. The Bank of Japan (BOJ) preference on maintaining an ultra-loose monetary policy as the economy has yet not reached the pre-Covid-19 level, thus widening of the divergence of Fed- BOJ monetary policy.

Moving further, market will keep an eye on the speech from Fed chair Jerome Powell that will give clues on the Fed’s actions in its May monetary policy.

USD/JPY 4 Hour Chart:

Support: 126.51 (S1), 125.94 (S2), 125.64 (S3).

Resistance: 127.37 (R1), 127.66 (R2), 128.23 (R3).

The Strong dollar supported by the high U.S. Treasury yields and Hawkish fed weighs on the Japanese yen. We expect a bullish trend for USD/JPY.