Japanese 10-year bond yields hit a new ten-year high of 0.97% after the Bank of Japan said yesterday it would adopt a more flexible approach to controlling rates on benchmark securities.
Japanese bond futures trimmed their losses slightly after the central bank announced unscheduled bond buying operations in order to limit the rise in yields following its policy decision.
Japanese government bonds are under heavy selling pressure as domestic inflation and high Treasury yields encourage traders to bet that the Bank of Japan will sooner or later change its policy.
The BOJ's policy adjustments did not appear to provide clearer signs of progress in monetary tightening for currency traders. The yen suffered its biggest one-day drop since April, bringing USDJPY close to the 152 level that forced Japanese authorities to intervene to support the currency a year ago.
After Japan's chief currency official Masato Kanda said that the authorities see some moves that are not in line with fundamentals and are ready to intervene if necessary, the yen started to strengthen.
Therefore, in general, taking into account all the prevailing conditions, if the USDJPY pair reaches fundamental overbought levels above the 150.0 mark, the Japanese regulator is likely to respond with actions aimed at strengthening the national currency.
Sell USDJPY if the currency rate approaches or breaks through the 150 mark.
Take profit at 145. A stop loss could be set at 155.
The zone of volatile fluctuations remains wide, within this range the market perceives any news very nervously.
The USDJPY pullback strategy is medium-term in nature and may remain relevant until significant changes in the monetary policy of the Bank of Japan take place.