Crude Oil Prices Cap Japanese Yen Gains at Key Resistance Level

The Japanese Yen is facing resistance near $160 against the US Dollar due to high crude oil prices, according to Brown Brothers Harriman's Elias Haddad. He notes that while US-Japan rate spreads have narrowed in favor of the JPY, the recent spikes in crude oil are a major obstacle to Yen gains.

Haddad explains that the BoJ's policy rate is near the lower end of its neutral range estimate (1.10%-2.50%) and Japan's economy is operating above potential, whereas Fed policy is restrictive with an assumed neutral rate of 3.00% and the US economy running around potential.

As a result, Haddad believes that until crude oil prices retreat, FX intervention can only contain USD/JPY upside but not force a sustained move lower. He highlights major resistance at $160.00 for USD/JPY, which has retraced 50% of its post-intervention drop since July 30.