Japanese Yen Appreciates On Continued Fed Tightening Concerns

The Japanese yen drifted higher against its major rivals during the European session on Friday, as investors digested the U.S. Federal Reserve's hawkish shift in monetary policy, signaling earlier rate hikes and winding down of the bond purchase program to rein in inflationary pressures.

The Fed penciled in two potential rate hikes in 2023 and indicated that it had begun talks about the process for withdrawing bond buying program.

U.S. treasury yields declined amid expectations that rate hikes would keep inflation under control.

Commodities fell amid a high dollar in the wake of earlier-than-expected rate hikes amid faster economic growth and strong inflation.

The Bank of Japan maintained its massive monetary stimulus, as widely expected, and extended the duration of the special funding programme to help struggling firms.

The board, governed by Haruhiko Kuroda, voted 7-1, with 1 abstention, to hold the interest rate at -0.1 percent on current accounts that financial institutions maintain at the central bank.

The bank will continue to purchase a necessary amount of Japanese government bonds without setting an upper limit so that 10-year JGB yields will remain at around zero percent.

The Bank decided to extend the duration of the Special Program to Support Financing in Response to the Novel Coronavirus by six months until the end of March 2022 with a view to continuing to support financing, mainly of firms.

The yen rebounded from its early lows of 110.33 against the greenback and 131.43 against the euro and advanced to a 2-day high of 109.94 and near a 2-month high of 130.81, respectively. The currency is likely to challenge resistance around 108.00 against the greenback and 129.00 against the euro.

The yen moved up to 1-1/2-month highs of 119.70 against the franc, 152.46 against the pound and 88.84 against the loonie, after weakening to 120.22, 153.77 and 89.37, respectively in previous deals. If the yen rises further, it may test resistance around 117.00 against the franc, 149.00 against the pound and 87.00 against the loonie.

Reversing from its prior lows of 83.38 against the aussie and 77.41 against the kiwi, the yen firmed to near a 3-month high of 82.76 and more than a 2-month high of 76.72, respectively. On the upside, 80.00 and 75.00 are possibly seen as its next resistance levels against the aussie and the kiwi, respectively.

Looking ahead, Canada new housing price index for May is set for release in the New York session.