USD/JPY extends its slide and hits one-week lows near 132.00

• The Dollar depreciates for the second day in a row and reaches the 132.00 area.
• COVID-19 fears and the BoJ's bond purchases are underpinning Yen's recovery.
• The USD/JPY is about to close its best year since 2013.

The US Dollar is dropping against the Japanese Yen for the second consecutive day. The pair has lost about 1.75% over the last two days and is trading at one-week lows right above 132.00, down from the 134.45 high seen on Wednesday.

The BoJ’s bond purchases and COVID-19 fears are boosting the safe-haven yen

The Japanese currency remains bid on the last trading day of 2022, in spite of the risk appetite observed in equity markets. Concerns about the economic consequences of the coronavirus outbreak in China, and the unscheduled bond purchases announced by the Bank of Japan have spurred demand for the JPY.

The sharp increase in COVID-19 infections in China has curbed expectations of a quick economic recovery in the Asian country. In this new scenario, several countries, including, the US, UK, and Japan have announced the imminent introduction of mandatory coronavirus tests for arrivals from China.

Furthermore, the Bank of Japan surprised the markets on Thursday, announcing two consecutive bonds’ purchasing actions in a single day. This action caught the market off the ward, speculating about the possibilities of further relaxation of the bond yield curve, and offered additional support for the Yen.

In the macroeconomic docket, US Initial jobless claims increased by 9,000 to 225K in the week of December 24 while the continuous claims rose to 1.71M from 1.669M in the same week, figures that failed to stimulate demand for the USD.

The dollar about to close a strong 2022

The greenback is on track to close the year with a 14% appreciation, its best yearly performance since 2013. The pair has been boosted by the  Federal Reserve’s aggressive monetary tightening path. The bank has increased the Federal Funds rate by 425 basis points with the Bank of Japan stuck to its ultra-loose policy, which crushed the yen for most of the year.

In the last quarter, however, the BoJ by allowing a certain relaxation on its long-term yields’ curve control, which sparked speculation about a monetary policy tweak over the coming months and triggered a 13% recovery for the Japanese Yen over the fourth quarter of the year

Technical levels to watch