USD/JPY Rebound Fades Ahead of BoJ Meeting Amid Hawkish Expectations

The US dollar (USD) has strengthened against the Japanese yen (JPY), causing USD/JPY to rebound. This reversal is attributed to higher US Treasury yields, a firmer USD, and rising oil prices offsetting some of the recent support from Bank of Japan (BoJ) tightening expectations.

Christopher Wong, an OCBC strategist, warns against extrapolating these gains ahead of Friday's BoJ meeting. The market has almost fully priced in another rate hike, and speculative positioning has shifted to a net long JPY for the first time since February.

Wong sees USD/JPY remaining supported if US yields and oil prices stay elevated but notes that event risks from both the Federal Reserve (Fed) and BoJ could keep price action two-way. A less hawkish Fed or BoJ guidance pointing to further normalization would revive the JPY-positive theme.