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USDJPY makes another multiyear high

The Japanese yen hit a fresh 24year low of 136.706 against the dollar as it was pushed down by bets that the Bank of Japan will remain reluctant to follow other major policymakers into lifting borrowing costs and tightening monetary policy. Overnight has seen however a pullback on haven buying.   Last weeks meeting and subsequent announcement by the BoJ firmly repeated the message that the current policy stance of yield curve control still remains. This means capping 10year Japanese Government bond yields at 0.25, a level of interest rate far below current market readings for government bonds in the rest of the world. In order to defend this yield target, the BoJ must buy massive amounts of bonds, thereby adding equivalent amounts of JPY into the Japanese money market system. This has contributed to a record weakening of the yen and an interesting connection to Fed monetary policy the more Fed tightens, the more BoJ is forced to ease. The yen slide has continued this week although weak risk sentiment overnight is supporting JPY. For sure, a drop in global bond yields would help arrest the decline in the Japanese currency.  But the renewed pressure comes from markets realising that the BoJ is not planning on giving into pressure for higher yields. Remember too that longend Japanese inflation expectations have risen over the last year but still remain under 1. This is far below the banks own 2 inflation target.   Hawkish Powell expected at his semiannual testimony The…

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