USD/JPY surges above 131.00 as yen battered post-dovish BoJ

• USD/JPY continues to trade close to session highs just under 131.00 as the buck remains resilient and yen weak post-BoJ.
• The buck seems to be the preferred currency safe-haven at the moment, thanks to Fed/BoJ divergence.
• January 2002 highs just above 135.00 look there for the taking.

The yen continues to reel in wake of the latest dovish BoJ policy announcement, that saw the bank double down on its dovish policy pledge to maintain negative interest rates and yield curve control for the foreseeable future. Traders seemingly took this as a green light to resume selling the yen, which, combined with continued broad US dollar strength, has launched USD/JPY to the north of the psychologically important 130.00 level for the first time in over two decades.

In more recent trade, the pair has even managed to break to the north of the 131.00 mark, despite fresh jawboning about yen weakness from officials at Japan’s Ministry of Finance in wake of the BoJ meeting, and despite the latest weaker than expected US Q1 2022 GDP growth figures. At current levels around 131.10, USD/JPY trades with on-the-day gains of about 2.1%, the largest single day gain since March 2020.

Meanwhile, USD/JPY now trades more than 3.0% higher versus Wednesday’s sub-127.00 lows, and looks on course to close out April with a 7.5% gain, the best one-month performance since November 2016. April’s historic rally comes on the heels of a nearly as impressive 5.8% gain in March, marking the strongest two-month run of gains since 1995.

And against the current macro backdrop, the highs of this century from January 2002 just above 135.00 look there for the taking. The BoJ’s insistence that it not move towards tighter monetary policy in tandem with its global peers (most notably, the Fed) suggests the yen may continue to suffer from unfavourable moves in rate differentials. This has seemingly robbed the yen of its status as the market’s preffered safe-haven asset, with the buck instead seemingly in vogue.

Risk appetite remains ropey with major US equity indices continuing to trade near multi-week lows as the month-end approaches, with investors citing fears about global growth and central bank tightening, with the latest US GDP figures only likely to exacerbate the former. Given the USD’s status as the top currency safe-haven, this might only add further tailwinds to USD/JPY in the coming weeks.