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• The Japanese Yen is still under pressure, with breakouts in a number of JPY pairs pushing up to new multi-year inflection points. The main driver appears to be continued central bank divergence, with the Fed preparing for up to five or six more hikes this year and many other central banks looking to raise rates to keep inflation under control. Meanwhile, the Bank of Japan does not appear to be in the same situation, making carry trades even more appealing. 
• Over the last two weeks, the Japanese Yen has been on an incredible run of weakness, with multi-year highs printing in all of the USD/JPY, AUD/JPY, and CAD/JPY pairs.
• The unavoidable issue is the reason, and the main legitimate clarification is national bank dissimilarity, with the Bank of Japan proceeding to keep a frail and free financial strategy while different economies plan to raise loan costs to battle expansion. As rates rise in USD, CAD, or AUD, the attractiveness of carry trades against the low-rate Yen rises, potentially pushing the topside in those pairings higher. This is the same theme that was present in the first and fourth quarters of last year, but with a greater emphasis. 
• In its September 2021 rate decision, the Fed indicated that there would be only one rate hike in 2022. However, markets were fairly certain that this would not suffice, and USD strength continued to rise in anticipation of a more hawkish shift at the Fed. That was evident in November, when Fed Chairman Jerome Powell was up for re-election. During his confirmation hearing, he even stated that the bank wanted to retire the term “transitory,” which they had used to ignore inflation throughout the previous year. This only increased expectations for a more hawkish Fed, which has since grown even more.

AUD/JPY

While the US dollar has remained range-bound for much of March, the Australian dollar has maintained its strength. Recently, I’ve been favouring AUD over USD, owing largely to the performance of the AUD/USD, which appeared to bottom in February. 

However, the additional AUD strength has been on full display in the AUD/JPY. However, the historical implications aren’t as profound as what we’re seeing in the major of USD/JPY. 

AUD/JPY was working on a possible breakout beyond the 85.00 psychological level a few weeks ago. It had a similar ascending triangle theme at the time, which was resolved with an aggressive topside move. It’s already broken through the 90 handle and is on its way to a new 6.5-year high. 

Chasing here could be difficult because the move is overbought; however, if a pullback occurs, there is some support potential around the 90 big fig. While that level is more than 150 pips away from current market prices, it’s important to remember that when volatility rises, it can affect both pullbacks and impulse moves.

CAD/JPY 

The CAD/JPY pair is currently on its 12th consecutive daily gain. This appears to be a stratospheric run based on short-term charts. And, given the CAD’s oil exposure and JPY weakness, there’s even some fundamental support for this move to have developed. 

The longer-term concern here is that prices are now approaching a previous level of support. This makes me even more wary of chasing the theme higher, as prices are now overbought and approaching longer-term resistance. In that neighbourhood, there’s also the psychological 100 level, which adds to the context.