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JPY tumbles on dovish BoJ surprise.
John J. Hardy
Global Head of Macro Strategy
Summary: Resurgent risk sentiment in US equities saw a pop in the US dollar, especially against a struggling Japanese yen. The USD buying is reversing in today’s trade if the JPY weakness a bit less so. That could change on a weak US jobs report tomorrow.
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The Bank of Japan surprised with dovish guidance as the bank gave itself a leisurely extra year – fiscal year 2027 – to rein in inflation to the 2% target. This sank the JPY across the board. Stale JPY longs, especially in the form of heavy USDJPY short positioning, and the latest blast higher in risk sentiment added to the headwinds for the JPY. In particular, the strong Microsoft and Meta Platforms earnings after the close of trading yesterday are challenging the “end of US exceptionalism” narrative and the idea that AI is losing momentum as both companies remain committed to vast spending on AI data centers, with Meta even announcing a significant expansion in its AI spending commitments. Still, while USDJPY rose and remained above the local resistance around 144.00, the EURUSD dip below to new two-week lows below 1.1300 was quickly gathered up in the European session today.
Chart: USDJPY
USDJPY has backed up above local resistance near 144.00 after the dovish Bank of Japan surprise overnight, which was perhaps doubly surprising given the geopolitical backdrop that has been behind a considerable dose of the JPY’s gains against the greenback as most, including this author, believe that Japan’s political leadership would be happy to see the JPY on a strengthening path against the US dollar while trade negotiations with the US are ongoing. We have taken a stab recently at identifying resistance levels, with 145.00 the first significant line in the sand, followed by the 146.50 prior major low from March. Given falling US 10-year yields that traditionally correlate quite closely with the USDJPY exchange rate and given the collapsing oil prices that have implications for inflation and therefore bond yields and Fed easing, I still expect this rally to fade sooner rather than later. A quick reversal here well back below 144.00, perhaps after a soft US jobs report tomorrow, would help the bearish case. In any case, today’s 144.74 high up to 146.50 is the last gasp short-term resistance zone for the bears, with 150.00-151.62 probably the more existential longer term resistance. Does the bear market reassert between now and the end of trading Friday or will this consolidation bedevil the bears for weeks longer?
Looking ahead, at this point it is most interesting to watch for anything that might change the narrative that has driven the profound rally off the lows in risk sentiment. Major US earnings reports remain important, especially in the AI space, but also on the impact from US tariffs. For example, I wonder if the Amazon.com and Apple earnings can provide the same kind of positive momentum as Microsoft and Meta did. While Amazon’s retail business drives less than half of its income, that business risks the most disruption among the Mag7 stocks directly from the Trump tariffs. Some 70% of the products it ships are sourced from China, with much of its growth in third-party sellers coming from there. Most of these items will not be in the carveouts (for laptops, TV's, etc.) for the 145% tariffs. Apple, meanwhile, may be seeing demand impacts on its business in China if there is a popular backlash there against US products, as well as added costs as it seeks to accelerate the shift in production supply chains elsewhere – especially to India. Then there are the incoming US economic data through the US jobs report tomorrow and the US April ISM Services report on Monday if these offer any color on recession risks. The US April ADP payroll change was a weak +55k yesterday, even if it is a poor predictor of the nonfarm payrolls change number tomorrow. Of course, headline risk in the opposite direction remains if a trade deal breakthrough is announced with India and perhaps Japan as well that looks easy in its terms, and especially if there is a strong hint of US-China détente and a plan to sit down at the negotiating table. At these levels, however, a good portion of these kinds of developments look like they’re already in the price. FX Board of G10 and CNH trend evolution and strength. The JPY trending reading is turning downright negative now, although this remains mostly the erasure of its long trending status rather than an indicator of a fresh broad bear trend in the making. Elsewhere, gold has lost altitude.
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Table: NEW FX Board Trend Scoreboard for individual pairs. GBPJPY is set to turn to a positive trend on today close if it fails to sell off again, but the JPY crosses aren’t really in bull mode yet. As noted in my Tuesday update, EURJPY is an interesting one to watch in the 164-165 zone, with a massive level at the twice touched 164.20. In today’s trade, the quick erasing of the EURUSD dip is a near-term boost for the bulls, that this higher support area near 1.1300 will hold.