What Will The BoJ Do?

USD/JPY has moved back towards the recent YtD/multi-year highs early this week, with some light cheapening of U.S. Tsy futures and continued BoJ inaction re: the enforcement of the upper end of its permitted 10-Year JGB yield trading band (10-Year JGB yields closed at 0.24% on Friday) at the fore. The rate has printed as high as Y122.36 thus far and last sits 20 or so pips better off at ~Y122.25, with one question front and centre, will the BoJ Act? If the BoJ does act and enforces the upper end of its permitted 10-Year JGB yield trading band, it faces the prospect of further cheapening in the JPY, given the divergent paths between the major global central banks and that which the BoJ seemingly aims to stick to (in addition to the well-documented hit to Japanese terms of trade on the back of the run higher in global commodity prices, given the fact that Japan is a net importer of energy and wider raw materials).

• BoJ inaction initially facilitated some JPY strength on Friday, before stabilisation kicked in during the Tokyo afternoon, while some fresh cheapening in U.S. Tsys dragged the cross higher in NY hours.
• Initial resistance is located at the Mar 25 high (Y122.44), with any break there set to expose the nearby 2.382 projection of the Dec 3 - Jan 4 - Jan 24 price swing (Y122.47). Above there, more meaningful resistance is located at the Nov 18 ’15 high (Y123.76). Conversely, support is located at the Mar 24 low (Y120.95). Note that our technical analyst has flagged that despite being in overbought territory, current momentum suggests that the rate still has the potential to extend the current bull cycle.
• The regional docket is empty on Monday, so focus will be on the aforementioned matters re: the BoJ and wider headline flow.