USD/JPY inter-market: Yen rallies on JP stimulus, more downside in play?

The USD/JPY pair resumed post-BOJ bearish momentum and dropped to fresh three-week lows just below the mid-point of 101 handle this Tuesday, largely driven by a strong rally in the yen after the Japanese government’s new stimulus package announcement disappointed markets. Markets had expected more than JPY 28 trln package, while the government announced exactly JPY 28 trln economic stimulus.

The dollar-yen pair fell sharply to 102 handle on Friday after the BOJ eased further by increasing ETF purchases, although the central bank disappointed markets by leaving all other monetary policy tools unchanged. On Monday, the major consolidating steep losses suffered post-BOJ verdict and held firmly onto 102 handle, before coming under aggressive selling pressure yet again on Tuesday, following the stimulus announcement before the Japanese cabinet.

The latest leg lower in the USD/JPY pair was also justified by some of the intrinsics, with the VIX, risk barometer, rising +3% to fresh three-day highs at 12.99 levels. At the same time, the Fed fund futures dived -0.42% so far, hovering near half-yearly lows just ahead of 152 levels. While, yield differential between US and Japanese 10-year treasuries tilted in favour of the Japanese currency, further supporting the slump below 102.00 in the major.