OCBC strategist Christopher Wong highlights that the USD/JPY currency pair has rebounded, driven by higher U.S. Treasury yields, a firmer U.S. dollar, and rising oil prices, which have offset some of the recent support stemming from expectations of Bank of Japan (BoJ) tightening. Wong cautions against extrapolating these gains ahead of Friday’s BoJ meeting, noting that markets have almost fully priced in another rate hike and that speculative positioning has shifted to net long JPY for the first time since February [1].
Wong suggests that USD/JPY may remain supported if U.S. Treasury yields and oil prices stay elevated, but warns that upcoming Fed and BoJ events could lead to two-way price action. He adds that less hawkish guidance from either the Fed or BoJ, especially if it points to further policy normalization, could revive Japanese Yen strength [1].
From a technical perspective, Wong observes that the earlier caution for bullish divergence of MACD has played out, with USD/JPY last seen at 154.40. While bearish momentum remains intact, there are signs of it fading as the RSI has risen from oversold conditions. He continues to monitor for interim risks of bullish divergence on MACD and RSI, advising to look for rallies to fade into. Key resistance levels are noted at 155 and 156.70, while support is seen at 153 and 152.20 [1].
Overall, the market is positioned for volatility around the BoJ meeting, with two-way risks depending on central bank guidance and macroeconomic factors such as yields and oil prices [1].
CONCLUSION
The Japanese Yen is facing two-way risks ahead of the Bank of Japan meeting, with market participants almost fully pricing in another rate hike. While USD/JPY remains supported by elevated yields and oil prices, central bank guidance could shift sentiment quickly. Traders should be cautious and monitor technical levels as volatility is expected around the event.