USD/JPY Soars to 5-Year High

On Friday, the U.S. dollar rallied to its highest levels against the Japanese yen since October of 2008.

The greenback strengthened broadly after the the Fed announced on Wednesday that starting in January, it will taper its monthly bond buying program to $75-billion from the $85-billion pace started in September 2012.

The Fed also said it will keep interest rates near zero for the foreseeable future. Bernanke addressed the target 6.5 percent unemployment threshold as follows, "so I expect there will be some time past the 6.5 percent before all of the other variables we'll be looking at will line up in a way that will give us confidence that the labor market is strong enough to withstand the beginning of increases in rates."

The assurance of continued low interest rates was taken as a 'risk on' signal by the market and consequently weighed on the safe haven Japanese yen.

The Fed Chairman's tone on the state of the U.S. economy was cautious, stating "the recovery clearly remains far from complete."

Divergent Policies of the Fed and BOJ

While the Fed began to gently tighten policy, the Bank of Japan decided to leave its monetary policy unchanged by a unanimous vote at a two-day Policy Board meeting that ended Friday. The BOJ maintained its plan to increase the monetary base by an annual 60 trillion to 70 trillion yen ($670 billion).

Japan's Prime Minister Shinzo Abe entered office in 2012 with a plan to control the strength of the yen, his broader strategy for economic growth often referred to in the press as 'Abenomics.' In April, the Bank of Japan announced their large scale bond-buying program geared to stimulate the Japanese economy and prevent deflation.

At a press conference after the meeting on Friday, Governor Haruhiko Kuroda said, “The correction of an excessively strong yen has been a plus for Japan’s economy.”

USD/JPY Daily Chart

Looking at the USD/JPY daily chart we can see that a 'shooting star' (bearish reversal) pattern is potentially forming for the day.