USD/JPY could remain range-bound next week, depending on interest-rate trends after US CPI and the performance of AI-related stocks, while attention is also focused on the timing of rate-hike decisions in Japan and the US.
This week, USD/JPY was seen rising as high as ¥158.949 following an upside surprise in US CPI, but it failed to hold those gains and fell back to ¥157.550. US long-term yields briefly rose to the 5.30% range, but turmoil in the equity market prompted buying of US Treasuries, sending yields lower again. The performance of AI-related stocks and fund flows emerged as key market focuses.
The performance of AI-related stocks could determine the direction of US interest rates and the trend toward a stronger or weaker dollar. Depending on Meta's earnings results and uncertainty over the profitability and financing of AI-related investment, the flight of funds into US Treasuries could ease, potentially bringing a return to higher yields and a stronger dollar. On the other hand, if caution over AI investment persists, US yields could continue to decline and USD/JPY could be pushed back to the mid-¥157 range.
Market attention regarding the timing of Japanese and US monetary policy decisions has changed from October to December. The Federal Reserve and the Bank of Japan have not currently indicated specific timing for their policy decisions in advance, but the possibility of an additional rate hike in December could become the market's focus. Depending on Japan's CPI release on the 23rd, expectations for a Bank of Japan rate hike in October could re-emerge.
The return of funds to domestic bonds is another point of focus. Reports indicate that Japanese institutional investors are increasing their purchases of domestic government bonds while selling overseas bonds, which could make further yen depreciation less likely even if US yields continue to rise. Next week's auction of Japan's 20-year government bonds will be watched as an indicator of demand for domestic bonds.
Technical analysis shows the 200-day line at ¥158.58 and the 25-day moving average around ¥157.50 on a daily basis, along with a rebound just below ¥159. If USD/JPY recovers ¥158.55–¥158.60 and holds above that level, it could test the ¥159 range. A break below ¥157.43 is expected to increase downside risk toward the latter half of the ¥156 range.