USD/JPY marks up a 34-year high as USD returns to favor

• USD/JPY rises to another multi-decade high amidst enthusiasm for the US Dollar. 
• US economic exceptionalism and a massive US Treasury bond sale are fueling USD buying. 
• Japanese Finmin verbal intervention warning is ignored by USD/JPY.  

USD/JPY pulls back a touch after making a new high for April - and the last 34 years - at 154.86 on Tuesday, as the US Dollar (USD) returns to favor amid continued optimism regarding the US economy. 

USD/JPY bulls deaf to Suzuki warning  

USD/JPY rallies despite Japanese Finance Minister Shunichi Suzuki warning the authorities might directly intervene to prop up the Japanese Yen (JPY) on Tuesday. Suzuki said that "the environment" is ripe for currency intervention. In addition, USD/JPY is now well above the historic intervention zone, seen as 150.00-152.00. 

Last week US Treasury Secretary Janet Yellen met with the Finance Ministers of Japan and South Korea and tacitly agreed to allow them to prop up their currencies if necessary, according to Bloomberg News.  

The slight uptick in Japanese preliminary Purchasing Manager Index (PMI) data for April, released on Tuesday, only temporarily slowed USD/JPY's relentless climb.  

Traders now look to US S&P Global PMIs out at 13.45 GMT, for more information regarding the progress of the US economy. A higher-than-expected result will reinforce the US's reputation for economic exceptionalism and continue USD/JPY's uptrend. 

Massive US Treasury bond sale may underpin USD/JPY

The US government is auctioning $180 billion worth of Treasury Notes this week as the US government issues more debt. $180B is a very large amount in such a short space of time - equivalent to a quarterly allocation normally - according to Mark Cranfield of Bloomberg MLIV. 

In addition, the largest ever auction of 2-year US Treasury Notes is taking place on Tuesday. The auctions are likely to lead to higher US Treasury yields and given increased demand from foreign bond buyers, USD buying which could have a bullish impact on USD/JPY, says Cranfield. 

USD/JPY traders prepare for Friday's BoJ meeting

Bank of Japan (BOJ) Governor Kazuo Ueda noted it was "appropriate to keep easy monetary conditions for now as underlying inflation is still below 2.0%". Ueda cautioned "If the price trend rises toward 2.0% in line with our outlook...it will mean raising the short-term interest rate," according to a note by private investment bank Brown Brothers Harriman (BBH).

The Bank of Japan's (BoJ) April policy meeting takes place on Friday. It is unlikely the BoJ will increase interest rates at the meeting but there is a chance it may reduce Japanese Government Bonds (JGB), which would be viewed as hawkish, JPY positive, and bearish for USD/JPY.  

If the BoJ delivers a hawkish hold on Friday it is unlikely the Japanese authorities will intervene to prop up the Yen, according to BBH. 

"The BOJ is widely expected to keep the policy rate target at 0 to 0.10%. However, the BOJ may raise slightly its 2024 core inflation projections implying greater room to tighten policy. Indeed, Japan's April Jibun Bank Flash Composite PMI shows private sector growth quickening at the fastest pace in eight months and price pressures intensifying," says BBH. 

Data on the horizon

US data could further impact USD/JPY volatility during the week, with GDP on Thursday and Core Personal Consumptions - Price Index data on Friday. 

In Japan, the Statistics Bureau of Japan will release the Tokyo Consumer Price Index just hours before Friday's BoJ meeting.