The dollar fell further on Monday against the Japanese Yen after the Bank of Japan’s (BOJ) move to adjust its bond-buying scheme was announced last week. Some investors consider BOJ’s decision to trim its purchases of long-term bonds as a tapering of its large quantitative easing programme. This has been perceived by the market as a signal the BOJ may look at tightening monetary policy sooner than expected. Moreover, the U.S. Dollar Index has traded at the lowest levels since the beginning of 2015. The continued weakness in USD has contributed to a drop in USDJPY pair.
USDJPY and U.S. 10-year Treasury Yields are known to be correlated, but a divergence can now be observed. At some point, the two may start to reconnect. It remains to be seen how the convergence will play out.
In the daily timeframe, the pair has now broken the 110.85 support which was the November low. This break with continued bearish momentum opens up a test of the 61.8% Fibonacci level of 110.15. Further support may be found at the 108.90. A breakdown would open the way for a move to the 2012 trend line near 107.25. On the flip side, rallies above 110.85 should find resistance at 111.40 and 112.00.