USD/JPY is expected to struggle next week. The US September employment report came in below market expectations, reducing expectations of an additional Fed rate hike and capping the upside. Tensions in the Middle East, higher oil prices, and concern over coordinated Japanese-US intervention are expected to continue pulling the market in opposite directions.
In next week’s foreign exchange market, USD/JPY is expected to struggle to rise. Higher US long-term interest rates will support the dollar, but the US September employment report came in below market expectations, reducing expectations of an additional Fed rate hike. Concern over foreign exchange intervention by Japanese and US authorities also remains strong, and many market participants expect the pace of appreciation to remain slow.
This week’s trading reflected a contest between higher oil prices driven by rising tensions in the Middle East and concern over intervention to correct yen weakness. Around the middle of the week, higher oil prices and US long-term interest rates pushed up the dollar. Toward the end of the week, a decline in initial jobless claims and the continued high level of the ISM manufacturing index also supported dollar buying through higher oil prices. In actual trading, there were periods when the dollar’s range shifted higher.
US energy trends and developments at the BOJ and Federal Reserve affected the yen. Rising US crude oil futures and expectations of heightened Middle East risk prompted dollar buying, with USD/JPY at times approaching the ¥158 range. On the other hand, some market participants believed that yen selling and dollar buying were beginning to encounter limits following reports of opinions expressed at the BOJ’s monetary policy meeting.
Next week’s focus is expected to include the ISM non-manufacturing index, the University of Michigan Consumer Sentiment Index, and the release of the FOMC minutes. The indicative range is generally expected to be ¥155–¥161. Upside levels are seen at ¥159.5, ¥160.3, ¥164.0, and ¥170.0, while downside levels are expected at ¥154.9, ¥151.9, ¥151.6, ¥149.2, and ¥146.2.