At the start of the week, USD/JPY is expected to remain firm around ¥157. Higher oil prices and rising US long-term yields at the end of the previous week supported dollar buying, while upside is expected to be limited this week ahead of the Bank of Japan meeting, the FOMC and the ECB Governing Council meeting.
At the start of the week, USD/JPY is expected to remain firm, centered around ¥157, in the Tokyo market. Higher oil prices caused by tensions in the Middle East and rising US long-term yields encouraged dollar buying. The pair rebounded from ¥156.30 to ¥157.08, but the possibility remains that yen buying could prevail when share prices fall. With the Bank of Japan meeting, the US FOMC and the ECB Governing Council meeting scheduled for this week, expectations for an additional BOJ rate hike and the governor's remarks will be the focus of the market. Euro selling resulting from political uncertainty in France is also a point to watch.
Looking back at trading at the end of the previous week, yen buying driven by risk aversion progressed against a backdrop of falling European shares, declines in US stock futures and fiscal and political uncertainty in France, sending USD/JPY down into the low ¥156 range. The pair subsequently tested the support level of ¥156.08 during Tokyo hours before reversing and returning to its current range. WTI crude oil futures surged into the $103-per-barrel range, while the US 10-year Treasury yield rose to around 4.99%, supporting the dollar.
This week features a central bank week, with the Bank of Japan meeting (29–30), followed by the US FOMC and the ECB Governing Council meeting. Market participants are seen as pricing in both expectations for an additional BOJ rate hike and the possibility of rates remaining unchanged, while short-term price movements are expected to remain uncertain. As inflationary pressure from higher oil prices intersects with yen buying for risk aversion prompted by falling share prices, choppy trading is expected to continue between downside support in the ¥156 range and upside resistance in the low ¥157 range.