EUR/JPY at 17-month high of 129.65, is the monetary policy divergence at play?

EUR/JPY jumped to a 17-month high of 129.80 after the Bank of Japan (BoJ) stepped in to curb the rise in the Japanese Government Bond yields in accordance with its yield curve control policy.

Monetary policy divergence at play

German yields spiked on Thursday after the ECB minutes showed policymakers considered a retreat from cheap money. The ECB data released earlier this week also showed the central bank fell short of its purchases of the German bunds for the third straight month in June.

Meanwhile, the BoJ increased its purchases this Friday morning in order to keep the 10-year yield around zero percent. This clearly indicates the BoJ is in no mood to deviate from its current monetary policy stance. Thus, the spike in the EUR/JPY is clearly due to monetary policy divergence. 

EUR/JPY Technical Levels

The cross was last seen trading around the session high of 129.80. A break above 130.00 (psychological resistance) would expose 130.69 (monthly 50-MA) and 131.00 (zero levels). On the other hand, a failure to hold above 129.40 (monthly 200-MA) would open doors for a revisit to 129.00 (5-DMA) and 128.61 (1-hour 100-MA).