Yen tumbles ahead of BoJ meeting

The Japanese yen has reversed directions on Wednesday and is sharply lower. USD/JPY is trading at 128.54 in the North American session, up 1.04% on the day.

The Bank of Japan holds its policy meeting later today, but investors shouldn't expect any major moves. The central bank has done little more than jawbone as the yen continues to fall. It's been a miserable April for the currency, as USD/JPY has surged 5.50% and is closing in on the symbolic 130 level. The BoJ is unlikely to intervene in order to combat the yen's slide, and Governor Kuroda has said on more than one occasion that a weak yen is good for the Japanese economy. Still, the BoJ does not like to see such sharp movements in the exchange rate, and we could a tweak in policy in order to give a lift to the ailing yen.

The BoJ has been far more interventionist when it comes to yield curve control. Earlier this week, the Bank made an offer to purchase an unlimited amount of 10-year JGBs, in order to cap yields at 0.25%. This marked the third time since February that the BoJ has stepped in to protect its yield curve control, a centrepiece of its ultra-loose policy. Japan hasn't been immune to the global surge in inflation, but with CPI well below 2%, the BoJ isn't all that concerned with inflation and shows no signs of changing monetary policy.

USD/JPY risk remains heavily tilted higher, primarily because of the US/Japan rate differential, which continues to widen. The Federal Reserve is in full throttle, with an oversize half-point hike almost a given at next week's policy meeting. Fed Chair Powell and other FOMC members have telegraphed that further 0.50% hikes are on the table, as the Fed prepares to come out with guns blazing to subdue inflation, which has become Public Enemy No. 1.

USD/JPY has broken above resistance at 128.07. Above, there is resistance at 1.2989

USD/JPY has support at 1.2674 and 1.2492
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