Aggressive monetary policy measures announced at last week’s Bank of Japan (BoJ) meeting have sent USDJPY on an explosive rally, and the pair may soon reach a four-year high north of the key 100 level.

USDJPY set fresh yearly records in Asian and early-European trade today and was within striking distance of the 100.00 mark—a level it hasn't seen in four years—as the rally in the pair continued unabated after last week's historic Bank of Japan (BoJ) meeting that set the country's monetary policy on a highly accommodative course.

USDJPY burst out of the gate at the Asian open today, gapping higher and hitting 99.00 in morning European dealing before pausing for some profit taking. The pair has now gained more than 400 points from the Friday lows as investors shook off the weak US non-farm payroll (NFP) report and continued to sell yen on assumption that the BoJ will flood the market with liquidity, as promised.

With the pair only 100 points away from the psychologically important 100.00 mark, the pressure to run stops at that level will be immense this week, and barring any sudden spike in risk aversion, the pair is likely to roll through that level as momentum remains relentless for the time being.

Japan’s Aggressive Policies Already Paying Off

The weaker yen is also starting to have a positive impact on Japanese consumer sentiment. The latest results from the Eco Watchers survey showed an increase to 57.3 from 53.2 the period prior. This was the fifth consecutive monthly gain in the index.

The Eco Watchers survey is one of our favorite indicators of Japanese demand because it measures true "man-on-the-street" sentiment by polling barbers, taxi drivers, and restaurant workers, and as a result, it provides the clearest reading on consumer behavior in the Land of the Rising Sun. The fact that the index has improved markedly since Prime Minister Shinzo Abe's aggressive policy to reverse deflation should provide encouragement to Japanese officials to pursue their unconventional policy actions.

2 USD/JPY Trade Scenarios

With little data on the economic calendar in both Europe and North America today, EURUSD has been driven primarily by the flows on the crosses. EURJPY rose to within a whisker of the 129.00 level and lifted EURUSD above the 1.3000 level in the process.

The pair still faces serious resistance at 1.3050, which remains the unfilled gap from more than a month ago, but it has proven remarkably resilient given the dour economic and political picture in the Eurozone. Even the latest news from Portugal, where the court has struck down some austerity provisions as unconstitutional, has not had an overly negative impact on trade.

With no US economic data due today, trading is likely to be momentum driven in the North American session. If USD/JPY can continue to push through the 99.00 barrier, the key 100.00 mark will quickly come into view. If it fails, however, sharp profit taking could trigger a quick reversal of the overnight gains as volatility continues to expand in the pair.

By Boris Schlossberg of BK Asset Management