USD/JPY has lost its footing, sharply down in Tokyo

In the Tokyo opening hour, USD/JPY fell from a high of 122.85 to print a session low of 122.37. The Bank of Japan's governor is speaking to Parliament which is potentially causing some volatility in the yen. 

Bank of Japan's governor Haruhiko Kuroda has said that, although it may not necessarily be the last resort, ''we will offer to buy an unlimited amount of 10-year JGBs if the rise in long-term interest rates is rapid.'' He also said yield will rise if trust in fiscal policy is lost. 

He added that an expected acceleration of inflation could hurt Japan's economy by weighing on household income and corporate profit, Bank of Japan Governor Haruhiko Kuroda said on Tuesday.

"We will patiently maintain powerful monetary easing to support an economy still in the midst of recovering from the COVID-19 pandemic's impact," he told parliament in a semi-annual testimony.

USD/JPY was sharply lower despite the 10-year JGB falling heavily but has since started to recover from a 122.37 low to 122.63 at the time of writing. 

Meanwhile, the US dollar was mixed against the G10, losing ground versus commodity-linked currencies but up against several others. US bond yields were also mixed on Tuesday, and the curve slightly steepened as the market consolidated on the back of a light news day. The 2-year yields fell from 2.47% to 2.40% while the 10-year government bond yields ranged but ended slightly higher at 2.40%.

Markets are waiting in anticipation for the minutes of the FOMC meeting are due this week. Fed officials began the process of policy normalization by lifting rates 25bp to 0.25%-0.50% at the March meeting.

''The FOMC pull no hawkish punches in its policy guidance, with Chair Powell also hinting further information about QT plans will be provided in the minutes (possibly including caps details). We continue to expect an official QT announcement at the May FOMC meeting,'' analysts at TD Securities explained.