USD/JPY was already on a bullish trend since the pandemic started two years ago. it reversed from 102 where it dived initially when coronavirus started and surged to 116 earlier this year. The JPY should have benefited from the uncertainty as a safe haven, but it has been declining since Japan is affected by the situation like everyone else and the Bank of Japan has been splashing cash around to help the economy, which helps weaken the Yen.

Although, the bullish momentum has picked up incredible pace, even though the conflict in Ukraine has increased global uncertainties with price hikes in crude oil and most consumer products, even though production and supply lines have remained operative.

USD/JPY Daily Chart – The Uptrend Doesn’t Stop

Larger MAs can’t even catch up with this forex pair

So, the reason for this surge in USD/JPY has been the bullish momentum in the USD, which has seen the demand increase as a result of increasing global tensions, both political and economic. The USD itself is under threat if Russia and China decide to scrap it as a global reserve currency.

At the same time, Saudi Arabia and Russia have given signs that they might sell oil in other currency other than the US dollar, which would scrap the petrodollar. But, the FED has started hiking interest rates and the rhetoric is getting increasingly bullish as inflation surges everywhere, which means that the support for the USD will continue. Today we heard comments from FED’s Daly

San Francisco Pres. Mary Daly on Bloomberg

• We are prepared to do whatever it takes to get price stability
• Some increase in policy rate above neutral is likely to be required in 2023
• Sees neutral rate at 2.5%
• Want to march rates to about 2.5% at least, and then perhaps move above it
• If inflation comes down, we might find just a little restrictive is just right
• If inflation moves up, will need to be more restrictive
• We are prepared to do whatever it takes to get price stability
• Fed policymakers project front-loading of rate increases
• Balance sheet adjustments would also deliver at least another rate hike worth of tightening
• This is quite a bit of frontloading compared to prior cycles
• Data will tell us a 50 basis point is the right recipe
• Conflict is a modest risk to growth, but would not deliver stagflation
• Too early to call we will have a global recession
• Very limited chance of US recession

Yesterday Daly said that she doesn’t see inflation at 2% at the end of the year (no kidding).

Cleveland Fed President Loretta Mester Speaking

• I would like to frontload some of our interest rate hikes
• better to do that earlier rather than later
• Frontloading better positions policy for however the US economy evolves
• I don’t have concerns on beginning to reduce balance sheet, and raise rates at the same meeting
• I think we are going to need to do some 50 basis point moves this year
• Markets can handle such a move, we need to get on with the process
• We need to get inflation under control
• We need to be more aggressive earlier rather than later
• We will need to bring interest rates up this year and next to tame inflation
• Some wage increases we are seeing are outstripping from captivity growth
• It is going to take some deliberate policy action on our part to bring inflation down
• I was supportive of 25 basis points at last meeting because it was coupled with ongoing rate increases

It was one week ago today that the Federal Reserve met and raised rates by 25 basis points. They saw rates going up seven times in 2022 to 1.90%.