USD/JPY Faces Another Psychological Test as Momentum Remains Limited
The US dollar's (USD) strength against the Japanese yen (JPY) is being put to the test as it approaches a key psychological level. The USD/JPY pair broke above 159.60, the 50% retracement of its post-intervention decline, and is now targeting the 160 level and the nearby 100-day moving average (DMA). However, momentum remains limited due to exporters selling into rallies toward 160 and concerns about U.S. growth tempering dollar enthusiasm.
CitiFX's U.S. Economic Surprise Index is near a three-month low and diverging from its counterpart measuring the global economy. This divergence suggests that the USD/JPY pair may not be as strong as it seems, and a retreat below 159 could ease bullish pressure. If the pair holds above 160 for an extended period, however, it could shift the post-intervention bearish narrative.
A cautious Bank of Japan (BOJ) hike in September, either due to geopolitics or a slowing economy, could steepen the Japanese government bond (JGB) curve and weigh further on the yen. This could challenge a history of successful interventions by the BOJ.