USD/JPY On A Tear As Recent Cycle High Gives Way

Fed/BoJ policy divergence continued to fuel a rally in USD/JPY on Monday. The rate soared further as the Tokyo session high/Mar 28 high of Y125.00/125.09 gave way into the London morning, with gains eventually capped at Y125.77. The clearance of Y125.00 suggests that participants started to see potential intervention around that level as unlikely, even as Japanese officials have recently frowned upon rapid yen depreciation.

• Yesterday's rally above Y125.00/125.09 coincided with notable upswings in implied USD/JPY volatilities across the curve, albeit it should be noted that recent cycle peaks remain intact for now.
• Spot USD/JPY trades at Y125.51 at typing, up 13 pips on the day. A move through yesterday's/Jun 5, 2016 highs at Y125.77/125.86 would bring May 17, 2002 high of Y128.15 into view. Bears look for a pullback under Apr 6 & 7 lows at Y123.47, before targeting Mar 31 low at Y121.28.
• In late Tokyo hours Monday the BoJ lowered its assessment on the economy in eight out of nine regions amid the wave of Covid-19 infections and supply-chain bottlenecks.
• Japan's PPI will hit the wires later today, with core machine orders coming up Wednesday. Also on Wednesday, BoJ Gov Kuroda will speak to the Trust Companies Assembly.