USD/JPY approaches 130.00 on surging yields, BOJ to stick with an ultra-loose policy

• USD/JPY is likely to reclaim a two-decade high at 130.67 as higher US yields battered yen.
• The 10-year US Treasury yields are on the verge of kissing the psychological resistance of 3%.
• A battered yen is not a serious problem for the BOJ but higher commodity prices are.

The USD/JPY pair is marching towards its two-decade high at 130.67 as rising US Treasury yields are punishing the already battered Japanese yen. The asset is continued with its five-day winning streak on Wednesday and is not displaying any signs of exhaustion despite the extreme overbought situation from the momentum oscillators.

The immense hawkish comments from the St. Louis Federal Reserve (Fed) President James Bullard on Monday have sent the US Treasury yields on fire.  The 10-year US Treasury yields are near 3% for the very first time in the last three years. Federal Open Market Committee (FOMC) member James Bullard dictated that investors can brace for a 75 basis point (bps) interest rate hike by the Fed. All-time-high inflation is demanding tight screws to get handled by the Fed policymakers. Also, the Fed’s Bullard dictated a herculean target of pushing interest rates to 3.5% by the end of this year.

Meanwhile, the determination by the Bank of Japan (BOJ) to keep an ultra-loose monetary policy till the achievement of pre-pandemic growth levels has frail the Japanese yen. A sluggish yen is likely to fetch political intervention however, the BOJ is not worried about the falling yen as it will improve their exporting business. The BOJ is facing the headwinds of higher commodity prices that are reducing the households’ real income due to higher energy bills. Also, investors are keeping an eye on Japan’s yearly National Consumer Price Index (CPI), which is expected to land at 1.3% on Friday.