Why USD/JPY Was Crushed

It hasn't been the year that the dollar bulls envisioned and many rushed for the exits on Tuesday. The yen was the top performer while the US dollar lagged. The calendar is light in the Asian timezones with only Australian home loans on the calendar.  Our existing Premium Insights inlcude the 2 longs in EURUSD opened right after Thursday's ECB announcement, USDJPY, USDCAD, USDCHF and AUDNZD. A new set of Premium trades is due out on Wednesday.

The most eye-catching move in a day of broad US dollar selling was against the yen. The pair plunged as low as 101.52 from 103.10 at the close on Monday. It was the largest one-day fall since August.

A few things conspired in the move. The first was the resilience of the pair above 103.00 on Monday despite the selloff in stocks and drop in bond yields. The market was hesitant to push the range ahead of the BOJ and there was talk of an option defense. When 103.00 finally broke, the pair had a chance to play catch-up.

The BOJ announcement shouldn't have been a big surprise. Some traders hoped for Kuroda to set the stage for more QE in the late Spring or early Summer but all the comments from policymakers have been cautiously optimistic or wanted to wait and see on the effects of the consumption tax hike.

Finally, speculators were caught on wrong-footed by last week's rise above the March highs in USD/JPY. The CFTC data showed fresh longs pouring into an already crowded trade and that led to a swift race to the exits.

In sum, the move was likely exaggerated by positioning and if stocks and bonds can hold the line for the remainder of the week, a retracement is in order. In the bigger picture, however, the BOJ will need to take a more dovish stance or the US economy will need to pickup to get the pair moving higher.

Some of the other moves were equally impressive, including cable and the market will have a chance to digest them hours ahead. The lone notable item on the calendar is Feb Australian home loan data at 0230 GMT. It's expected to rise 1.5% but is unlikely to move the aussie.