The US dollar/yen pair is expected to trade in a ¥157–¥162 range this week, influenced by higher crude oil prices and US interest rate movements, with monetary policy announcements in Japan and the US and a Japan-US summit also in focus.
Last week, yen selling and US dollar buying continued, bringing the US dollar/yen pair close to levels last seen in July 2024. Higher crude oil prices and rising US interest rates were behind the move, while the yen weakened amid heightened supply risks for crude oil. However, monetary policy announcements in Japan and the US and a Japan-US summit are scheduled for the coming week, raising the possibility of a significant shift in direction.
Although signs are beginning to emerge that some of the factors that have justified a stronger US dollar and weaker yen may be abating, the US 2-year Treasury yield has risen to around 3.75%, with the July 2024 high in sight. Some have suggested that expectations for additional rate cuts have almost disappeared, and the market’s direction may change depending on future interest rate movements.
Rising crude oil prices remain a factor supporting a stronger US dollar and weaker yen, but the WTI deviation from its 90-day moving average has reached one of its highest levels on record, heightening concerns that the move has gone too far. A short-term correction in crude oil prices is also anticipated and could affect the market’s subsequent direction.
This week, the focus will be on monetary policy announcements in Japan and the US and a Japan-US summit. While the Bank of Japan’s policy announcement could provide a cue for yen selling, the release of the FOMC dot plot could signal a change in the policy outlook. Following these events, the US dollar/yen pair is expected to trade in a ¥157–¥162 range.