USD/JPY drops despite BOJ’s bond buying effort

The Dollar-Yen pair failed to chew through offers around 112.50 levels even though the Bank of Japan purchased JPY 400 billion worth of bonds in order to suppress the yields. 

The BOJ announced it will buy JPY 400 billion worth of bonds maturing in 1-3 years, JPY 420 billion maturing in 3-5 years, JPY 450 billion maturing in 5-10 years and JPY 250 billion in inflation indexed JGBs. The Japanese Yen dropped, pushing the USD/JPY pair higher to 112.54 levels.

However, the weakness was short lived as the spot fell back to 112.20 and was last seen trading around 112.15 levels. Moreover, the JGB yields hardly moved in response to JGB news. As per Bloomberg data, the 5-yr yield dropped just one basis point, while the 10-yr yield traded largely unchanged around 0.09%. Meanwhile, the 30-yr yield traded just one basis point higher. 

The Dollar side of the story is hardly encouraging, given that the treasury yields remain flat lined despite hawkish comments from Fed’s Harker. 

USD/JPY Technical Levels

A break below 112.05 (Feb 2 low) would expose previous day’s low of 111.59, under which a major support is seen at 111.36 (Nov 28 low). On the higher side, stiff resistance is seen around 112.50. The spot has failed to hold on to gains above 112.50 for the third straight session today. Hence, only a daily close above 112.50 would open doors for a more sustained rise to 113.10 (10-DMA). The next major resistance is seen at 113.50 (Feb 3 high).