JPY: the yen sinks by 10% in March, here's what the charts say

The Bank of Japan announced that it will buy 10-year JGBs at the end of the month as part of its yield curve control programme. As a result, the JPY's decline accelerated as stops were triggered.

Traders had a busy start to the trading week as the JPY pair rally reaches extreme levels. IN MARCH ALONE, the JPY fell about 10%, and Monday's move triggered more stops.

On Monday alone, the USD/JPY was up over 200 pips, and it traded above 125 at one point during the trading day. Of course, these are abnormal moves, but at the current rate, the exchange rate is threatening to surpass the highs reached in 2015.

Daily USD/JPY chart (2015-2022)

Technical analysis favours more upside
From a technical analysis perspective, the JPY could fall further. The USD/JPY chart points to more upside, despite the fact that the exchange rate is approaching its 2015 highs.

The market broke higher in early 2021, following a terminal impulsive pattern. On the way up, it formed two triangles that acted as continuation patterns, and the recent break above 116.50 was the defining moment when the bears were trapped.

According to Bloomberg, Japanese retail traders have built the largest net long JPY position of all time. By all means, this points to another collapse for the JPY, as retail traders are usually on the wrong side of the market during such violent moves.

BOJ to continue buying bonds
Yen pairs accelerated their bullish move today, fuelled by news that the Bank of Japan plans to buy 10-year JGBs (Japanese government bonds) as part of its yield curve control programme. This is in stark contrast to what the Fed or other major central banks in the developed world are doing, further fuelling the JPY sell-off.

The Bank of Japan has made it clear that it will not tolerate higher yields and that it plans to continue easing monetary policy. As such, we should not rule out a move above the 2015 highs, as 130 attracts the next round number for USD/JPY traders.