The widening of the spread between U.S. Government Bonds and Japanese Government Bonds (JGBs) also made the dollar a more attractive investment. Buyers were also influenced by an easing of geopolitical tensions which diminished the need for investment in safe-haven currencies like the Japanese Yen. The Dollar/Yen rose to its highest level since February 8.
The USD/JPY settled the week at 109.045, up 1.422 or +1.32%.
In other news, the Bank of Japan kept monetary policy steady and removed a phrase of the time frame for achieving its 2 percent inflation target, suggesting it is no rush to reach its elusive price goal with the economy in good shape.
The primary catalyst behind the Dollar/Yen’s rally was a sharp rise in U.S. Treasury yields. On Tuesday, the U.S. benchmark 10-year U.S. Treasury note yield broke through the psychologically significant 3-percent level for the first time in more than four years as investors reduced their U.S. bond holdings on worries about rising inflation and growing government debt supply.
In other news, according to the Conference Board, Consumer Confidence rose to 128.7, beating expectations. Durable Goods Orders came in at 2.6%, below the previous read, but better than the estimate. Core Durable Goods Orders came in flat at 0.0%, below the estimate. Advance GDP also beat the forecast with a 2.3% read. However, economists were still concerned about low consumer spending.
The economic data was strong enough to support at least two additional rate hikes by the Fed later this year. This should continue to underpin the USD/JPY.
Investors also dumped the Japanese Yen in response to an easing of geopolitical concerns particularly diminishing worries over a U.S.-China trade war and the outbreak of peace between North and South Korea.
Forecast
There are no major economic reports from Japan this week.
The same factors that drove the Dollar/Yen higher for a fifth consecutive week will influence the market this week. They include rising Treasury yields, a firmer U.S. Dollar and the easing of geopolitical uncertainty.
With the new month comes fresh U.S. economic data that could influence Fed policy. Any report that shows rising inflation will be especially bullish for the USD/JPY if they trigger another spike in U.S. Treasury yields.
The major reports this week include ISM Manufacturing PMI, ISM Non-Manufacturing PMI and the U.S. Non-Farm Payrolls report.
The U.S. Federal Reserve will also release its latest interest rate decision and monetary policy statement. It is not expected to raise rates at this meeting, but widely expected to do so in June. In its monetary policy statement it could offer hints as to whether it expects to raise rates two or three more times this year.
In the absence of renewed geopolitical concerns, a hawkish Fed could drive the USD/JPY sharply higher. The key upside target is 109.664 to 110.859.