USD/JPY remained in the ¥159 range even after the U.S. Consumer Price Index (CPI), with the focus now on whether it can break through the psychologically important ¥160 level. The Japan-U.S. interest rate differential and BOJ policy developments are expected to determine the direction of the currency market going forward.
USD/JPY is currently trading in the ¥159 range, with a rise into the ¥160 range the focus of the market. Following movements in the Nikkei market, the pair edged lower to around ¥159.27, and the short-term trend is viewed as neutral to bearish. At the same time, caution is growing over profit-taking and a market correction ahead of the psychologically important ¥160 level. USD/JPY is expected to remain firmly supported in the ¥159 range even after the U.S. CPI release on 13 August.
Going forward, the timing of the Fed's rate-cut cycle, BOJ monetary policy and the trajectory of the Japan-U.S. interest rate differential will be important factors. If U.S. interest rates remain high, dollar buying could prevail, while stronger expectations for rate cuts would increase the risk of dollar selling and yen appreciation. With expectations for an additional BOJ rate hike still present, whether ¥160 can be breached is being closely watched as a factor that will determine the short-term direction.
BOJ policy also affects the yen's direction. If the BOJ moves toward an additional rate hike, Japanese interest rates could rise and the Japan-U.S. interest rate differential could narrow, potentially supporting the yen. At present, however, the yen's downward trend is expected to continue. Depending on market developments after the U.S. CPI release, pressure to test a break above ¥160 and the risk of a correction are expected to remain evenly balanced.