USD/JPY retreats from fresh 2018 highs registered at 114.54 earlier in the day. Yesterday, the pair jumped aggressively and pierced the 114.00 handle for the first time early-November 2017. The rising US Treasury yield is behind the widespread dollar strength, while the current pair’s retreat from tops is due to the prevailing risk-off sentiment in the global financial markets.
According to the IMF, Japan needs to continue its accommodative monetary policy and maintain long-term interest rate target. The Fund has also mentioned the increased downside risks to Japan, citing weaker global demand and uncertainty on trade as factors that could undermine growth. Though there was nothing new in the statements, this doesn’t bode well for the yen that struggles to resist the pressure from dollar bulls amid the persistent monetary policy divergence.
In this context, the longer term outlook for the Japanese currency remains uncertain, with risks skewed to the downside amid low inflation and bank of Japan’s commitment to accommodative monetary policy. As such, the USD/JPY could resume the ascent as soon as risk sentiment improves. The initial upside target lies at 114.70 and then at 115.00.