USD/JPY builds on BoJ-inspired rally, jumps to its highest level since March 10

• USD/JPY catches aggressive bids after the BoJ left its monetary policy settings unchanged.
• BoJ Governor Ueda’s dovish remarks aggravate the bearish pressure surrounding the JPY.
• Bets for another 25 bps Fed lift-off in May boost the USD and also contribute to the rally.

The USD/JPY pair rallies over 250 pips from the daily low and jumps to its highest level since March 10, around the 135.85 area during the early part of the European session on Friday.

The Japanese Yen (JPY) slumps across the board after the Bank of Japan (BoJ) announced its policy decision, which, along with resurgent US Dollar (USD) demand, prompts aggressive short-covering around the USD/JPY pair. As was widely expected, the Japanese central bank left its ultra-loose policy settings unchanged and also made no tweaks to its yield curve control (YCC) by a unanimous vote.

The JPY selling picks up pace in reaction to the BoJ Governor Kazuo Ueda's dovish remarks, noting that it will be appropriate to continue monetary easing to achieve the 2% inflation target. Speaking at the post-meeting press conference, Udea added that the risk from tightening too hastily is larger than monetary policy falling behind the curve and that Japan's inflation is likely to slow below 2% in the latter half of the year.

The USD, on the other hand, climbs to a fresh weekly high and continues to draw support from firming expectations for a 25 bps lift-off at the next FOMC policy meeting in May. The bets were reaffirmed by Thursday's US macroeconomic releases, which indicated persistent price pressures and that the US job market remains healthy despite an economic slowdown. This is seen as another factor pushing the USD/JPY pair.

Apart from this, the strong intraday rally could further be attributed to some technical buying above the 135.00 psychological mark, which coincided with the 61.8% Fibonacci retracement level of the March downfall. This might have already set the stage for a further appreciating move, though bulls might wait for the release of the US Core PCE Price Index - the Fed's preferred inflation gauge - later this Friday.

Technical levels to watch