USD/JPY continues to trade around the ¥158 level, with this week's expected range at ¥157.00–¥160.50. Ahead of the PCE data on the 26th and the Fed chair's speech on the 28th, the market's expectations for further rate hikes are expected to be reassessed.
The main factor driving USD/JPY last week was the US Treasury's expanded buyback of long-term government bonds. Although US long-term yields temporarily declined, the dollar continued to weaken against major currencies.
There have been periods in which high US interest rates alone have not been enough to support the dollar, and attention will again focus this week on the divergence between interest-rate movements and the dollar's response.
The key events this week include the US PCE price index, due at 21:30 on the 26th, and the Fed chair's Jackson Hole speech by Warsh, scheduled for 23:00 on the 28th. These events could prompt the market to reassess the possibility of additional rate hikes. At the same time on the same day, the preliminary estimate for the annual benchmark revision to US payrolls will also be released. A downward revision could weigh on the dollar.
There are also factors affecting the yen, but expectations for an additional Bank of Japan rate hike have not receded, and many believe that US factors should remain the priority. Although speculative short-yen positions have increased, they do not appear sufficient to drive USD/JPY higher in one direction.
Technically, the 200-day moving average is at ¥158.36, the 25-day moving average at ¥160.10, and the 75-day moving average at ¥160.47. USD/JPY is currently holding near the 200-day moving average. A break below ¥158.36 would put ¥157.00 in view as the next downside target, while ¥160.10–¥160.20 is the level to watch on the upside.
The author's base-case scenario is for a range centred around the ¥158 level, although downside risks are considered higher than previously. The expected developments include a move toward ¥157 if certain conditions are met, and a rebound if USD/JPY breaks above ¥160. Readers should identify which factors, including the PCE data, the speech, the payrolls revision and the CPI, warrant the greatest weight.