USD/JPY is expected to trade in a ¥158.50–¥161.30 range this week. The focus will be on assessing dollar-buying in response to higher US yields through the ISM manufacturing, ADP and ISM non-manufacturing reports, as well as the US employment report on the 4th.
Last week, USD/JPY moved between the latter half of the ¥158 range and the first half of the ¥160 range depending on long-term US Treasury yields, while a decline in US yields also brought periods of dollar weakness. However, the July US PCE price index released on the 26th came in above market expectations, reigniting factors supporting the dollar. Following comments at Jackson Hole on the 28th, expectations of higher US yields and a stronger dollar returned, and USD/JPY recovered above ¥160 once again.
This week, the focus will be on determining through the ISM reports and the employment report how long US yields can sustain dollar strength and yen weakness. If the data are firm, USD/JPY is expected to break above the 75-day moving average at ¥160.56 and test ¥161.30. Conversely, weak figures could push it below ¥159.31 and back into the ¥158 range.
Expectations of an additional Bank of Japan rate hike and intervention concerns are also key factors. The focus will be on whether comments from Deputy Governor Himino and the extent to which the move is priced into the market become factors limiting the yen's upside. Attention is also warranted regarding intervention concerns if USD/JPY rises above ¥160 and the risk of a rapid depreciation of the yen. IMM positioning shows a trend toward increased yen selling, although a reversal could emerge depending on upcoming US data.
Technically, the 25-day moving average at ¥159.31, the 75-day moving average at ¥160.56 and the 200-day moving average at ¥158.44 are being watched, and trading within the current range is expected to remain the central theme. With the RSI at 51.8, the market is not particularly overbought or oversold at present, leaving room for movement in either direction.