Japanese Yen: BoJ guidance crucial for further gains against US Dollar – OCBC

OCBC strategist Christopher Wong notes that JPY has extended gains, pushing USD/JPY near recent lows despite firmer Fed hike pricing and higher US front-end yields. Markets are positioned for a 25bp Bank of Japan (BoJ) hike, with speculative positioning now net long JPY. Further USD/JPY downside is seen as contingent on a sufficiently hawkish BoJ message and softer Dollar and US yields.

Yen strength driven by BOJ expectations

"JPY extended gains on Friday, with USD/JPY lower despite firmer Fed hike pricing and higher UST front-end yields after CPI. That divergence is worth noting, as the rates differential backdrop would normally have been supportive of USD/JPY."

"Instead, BoJ expectations continued to dominate, with markets largely positioned for a 25bp hike later this week. CFTC data also showed speculative positioning flipping net long JPY for the first time since February."

"BoJ MPC in focus (Fri). With a hike largely in the price, the bigger focus is on Governor Ueda’s guidance and whether the BoJ keeps the door open to further normalisation."

"Further downside in USD/JPY may require the BoJ to sound sufficiently hawkish on the path ahead, flows to return and for the broader USD, UST yields to turn lower."

"USD/JPY last seen at 153.60 levels. Daily momentum is bearish while RSI is near oversold conditions. Support at 153, 152.20 levels (2026 low). Resistance at 155 (23.6% fibo retracement of 2026 low to high), 156.70 (38.2% fibo)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)