BoJ Guidance Crucial for Yen's Further Gains Against US Dollar
The Japanese yen has continued its upward momentum against the US dollar, with the USD/JPY pair reaching recent lows despite stronger expectations for a Federal Reserve rate hike and higher US front-end yields. According to OCBC strategist Christopher Wong, markets are positioned for a 25bp Bank of Japan (BoJ) rate hike, with speculative positioning now net long JPY.
The divergence between the rates differential backdrop and the yen's strength is notable, as the rates environment would normally support USD/JPY. However, BoJ expectations continue to dominate market sentiment, and a sufficiently hawkish message from Governor Ueda could lead to further downside in USD/JPY.
CFTC data shows that speculative positioning has flipped net long JPY for the first time since February, indicating increased optimism about the yen's prospects. The BoJ MPC meeting on Friday will be closely watched, with a focus on Governor Ueda's guidance and whether the central bank keeps the door open to further normalization.
The USD/JPY pair is currently trading at 153.60 levels, with daily momentum bearish while RSI is near oversold conditions. Key support levels for the pair include 153 and 152.20, while resistance lies at 155 (23.6% fibo retracement of 2026 low to high) and 156.70 (38.2% fibo).