• The Bank of Japan (BOJ) on Tuesday told the market it would make unlimited amounts of purchases of 10-year JGBs at 0.25%.
• Japan’s Policymakers stressed the need to keep monetary policy easy despite of rising prices.
• Japan Prime Minister orders cabinet to compile relief package to combat rising prices.

US dollar is trading low against the Japanese yen during Tuesday trading session on BOJ’s second consecutive day of intervention.

Japan’s 10-year government bond yields hovered near the upper limit of the Bank of Japan’s yield target on Tuesday, even as the central bank remained determined to defend the target, repeating its offer to purchase bonds. The Bank of Japan (BOJ) on Tuesday told the market it would make unlimited amounts of purchases of 10-year JGBs at 0.25%. That was in line with its statement on Monday of a standing offer to buy the bonds at 0.25% for three days starting on Tuesday after yields on Monday rose to that level, the highest in six years, and the upper limit of the BOJ’s policy band. This, in turn, provided a goodish lift to the Japanese yen.

Meanwhile, Japanese policymakers stressed the need to keep monetary policy ultra-loose, even as some of them saw signs of growing inflationary pressure from the Ukraine crisis, according to a summary of opinions at their March meeting released on Tuesday.

Japanese Prime Minister Fumio Kishida on Tuesday ordered his cabinet to put together a fresh relief package by the end of April to cushion the economic blow from rising fuel and raw material prices.” We need to prevent rising fuel, raw material and food prices from inflicting a huge impact on people’s livelihood and economic activity,” Kishida told his cabinet ministers, underlining the policy dilemma facing Japan and the rest of the world as the Ukraine crisis fans global inflationary pressures.

Kishida said for the time being, the government will tap special reserves set aside under the fiscal 2022 budget to fund the spending measures, the 5.5-trillion yen ($44.4 billion) in special reserves is mainly set aside for emergency spending to cope with the COVID-19 pandemic.

On the other hand, it is worth noting that a slew of influential FOMC members, including Fed Chair Jerome Powell, left the door open for a larger rise in borrowing costs to bring down unacceptably high inflation. The markets were quick to price in the possibility of a 50 bps Fed rate hike move at the May policy meeting. This underpinned the 10-year US government bond to stand tall near the highest level since 2019 and limiting the downside for the yen pair.

USD/JPY 4 Hour Chart:

Support: 122.22 (S1), 120.56 (S2), 119.12 (S3).

Resistance: 125.32 (R1), 126.76 (R2), 128.42 (R3).

The yen pair remains volatile amidst Fed-BoJ divergence, we expect a bearish trend for USD/JPY.