NZD/JPY surges towards year-to-date highs in the upper 86.00s as global yield rally pressures yen, NZ CPI eyed

• NZD/JPY rode a wave of yen weakness on Tuesday, surging roughly 1.5% to the upper 86.00s.
• The pair came close to printing fresh highs for the year, as rising global yields kept the yen under pressure.
• Another catalyst for further NZD/JPY upside could be this Thursday’s NZ CPI data release.

NZD/JPY rode a wave of yen weakness on Tuesday, surging roughly 1.5% to come within a few pips of testing annual highs printed last month in the 86.90s. For now, the pair is struggling to hold above last week’s 86.66 highs and is currently trading in the 86.60s. A further rise in global yields amid further bets on global central bank tightening was the major driver of the latest rally in NZD/JPY.

Japanese politicians have been jawboning more and more in recent days about the negative impact of yen weakness, but until the BoJ budges from its ultra-dovish policy stance, the yen remains vulnerable to further losses. Remarks from BoJ Governor Haruhiko Kuroda earlier in the week suggested that the bank won’t be looking to change its policy stance any time soon.

That suggests risks remain tilted to the upside and a bullish breakout into the 87.00s and further push towards the 2014 highs in the 94.00s remains on the cards. Further adding to these upside risks is New Zealand Consumer Price Inflation data for Q1 2022 scheduled for release on Thursday. The YoY rate of inflation is seen jumping to 7.1% and the QoQ rate of price gain is seen hitting 2.0%.

After the RBNZ lifted interest rates by 50 bps to 1.50% last week, a few more 50 bps rate hikes might well be in store, maintaining NZD’s massive rate advantage over the yen. If profit-taking on yen shorts does see the pair drop back again, traders should not support in the form of recent lows and the 21-Day Moving Average in the low 85.00s.