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Dollar at 20-yr high vs yen on Fed-BOJ mismatch; war favors more

April 18, 2022By Reuters

USD/JPY’s surge to 20-year highs driven by soaring Treasury-JGB yield spreads and natural gas prices may last as long as the war in Ukraine, as economic fallout from Russia’s war raises demand for U.S. energy exports and the cost of energy imports for a resource deficient Japan.

The main focus of USD/JPY’s 10.7% surge since the invasion of Ukraine began on Feb. 24 has been the pricing in of faster Fed rate hikes while the BOJ shows no sign it will either hike or expand the cap on 10-year JGB yields.

That has sent 2-year Treasury-JGB yields nearly a full percent higher while U.S. nat gas prices have risen 60% since Feb. 24, driving the positively correlated USD/JPY above Wednesday’s 126.32 high on EBS and the 161.8% Fibo objective off 2021’s base.

If Japan’s MOF doesn’t use actual FX intervention nL3N2WB1MP to answer concerns about surging imported inflation from a falling yen nL3N2W807K and the BOJ stays easy nL2N2WB0CR, USD/JPY could eventually challenge 2022’s peak by 135.

After Russia’s flagship in the Black Sea sunk this week, it’s less likely that the war will end quickly nL5N2WC5V7 and upward pressure on energy prices and USD/JPY will persist.

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(Randolph Donney is a Reuters market analyst. The views expressed are his own.)


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