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Pressure on the yen has returned. On Wednesday morning, USD bulls pushed the pair to the psychological level of 130.
The greenback is getting stronger versus the Japanese yen amid the difference in the monetary policies of their central banks as well as strong divergence between Japanese and US bond yields.
Earlier today, the dollar surged to its 20-year high against the yen. Eventually, USD/JPY skyrocketed to 129.43 and then bounced to 128.615.
The dollar swelled on hawkish comments by a Fed official, hinting at even more aggressive moves by the US regulator.
The ongoing lockdown in China aimed at curbing the spread of COVID-19 is believed to only make things worse when it comes to global supply chains. Against such a backdrop, inflation will accelerate and the Fed will have to resort to emergency measures to tame it.
In this light, the US Treasury yield has extended the rally. During the Asian session, yields hit the high of 2.981% that was previously recorded in December 2018.
Unlike its American counterpart, the Bank of Japan still sticks to its dovish monetary policy stance. On Wednesday, the regulator offered to buy an unlimited amount of 10-year bonds at 0.25% to defend the yield target.
The Bank of Japan is committed to maintaining yields at around zero percent, which is the main driver for USD/JPY. The pair is now on track for its second monthly rally in a row. USD/JPY grew by 5.8% in March and advanced by more than 5% in April.
Geopolitical uncertainty and the escalation of the Russia-Ukraine conflict are playing on the side of the greenback with demand for the safe haven being on the rise.
Earlier today, USDX increased to 101.01 and then fell to 100.76 versus the basket of 6 major currencies.
The greenback has received additional support from the dovish People's Bank of China. On Wednesday, the Chinese central bank announced it would maintain its benchmark interest rates for corporate and household loans unchanged. In this light, the Chinese yuan dropped against the dollar to its October 2021 low of 6.4115.
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