The prevailing view is that downward pressure on the yen will continue even after the BOJ implemented a 0.25-point rate hike. Next week, USD/JPY is expected to test the ¥159 range, driven by expectations that the FRB will keep rates high and by the impact of higher crude oil prices.
USD/JPY rebounded to the upper half of the ¥158 range this week, recovering sharply from ¥152.887 previously. The writer's base-case scenario puts the range at ¥155.50–¥159.50, with attention next week focused on whether the pair can hold in the ¥157 range and move back toward ¥159. The Tokyo market will be closed from the 21st to the 23rd, and with real-demand flows thinning, price movements could become more pronounced under the direction of overseas investors.
The BOJ changed the policy rate from 1.00% to 1.25%. Governor Ueda (植田) said it would take time to assess whether inflation would become firmly established at 2%, among other factors, and did not provide a specific indication of the timing or pace of additional rate hikes. The market viewed the decision as lacking evidence to support a rapid pace of further hikes. The split vote on the rate decision was also said to have influenced the yen-buying reaction.
In the United States, the FRB implemented a 0.25% rate hike, bringing the policy rate to 3.75%–4.00%. Next week will feature a series of U.S. PMI releases, Treasury auctions and comments from FRB officials. If U.S. interest rates remain high, USD/JPY is expected to move from the ¥158 range toward ¥159, although the pair could be pushed back into the ¥156–¥157 range depending on post-FOMC rate movements.
The impact of the situation in the Middle East, against a backdrop of higher crude oil prices, could weigh on USD/JPY. While rising import costs could put further downward pressure on the yen, attention is also warranted for comments from Japanese authorities seeking to restrain yen weakness as the pair approaches the ¥159 range. Technically, the key level is ¥157.30. A break below it would bring ¥156.64 and ¥155.75 into view as potential downside targets.