USD/JPY

USD/JPY is now up by more than 500 pips from the low taken the day that Scott Bessent taunted markets, saying ‘you can bet against me if you want.’

The US dollar has extended its gains this morning, even if oil prices finished lower for the fifth consecutive day yesterday. Oil prices have bounced back in this first half of today’s session, causing a bit of pressure on currencies that rely on energy imports such as the euro, pound, Swiss franc, and Japanese yen. But it was the dollar that was exerting the most pressure, amid hawkish FedSpeak. Meanwhile, European indices and precious metals were also under a bit of pressure amid the strength of the dollar.

Despite mounting geopolitical risks, crude oil prices have declined more than 10% from their monthly highs. Combined with overbought momentum readings on the DXY and dollar pairs, this increases the risk of a near-term reversal.

Perhaps no pair illustrates as large of a dichotomy between short and long-terms right now as USD/JPY, and the big question remains how aggressive policymakers might try to be on continued strength.

Yen bulls were caught out by the BOJ, but record futures longs and rising intervention risk could yet prove their positioning well timed.

A hawkish Fed, a dovish BOJ hike and a suspected rate check have left USD/JPY caught between powerful rates support and renewed intervention risk.

The Japanese yen continues to face challenging conditions in the short term. By the end of the week, USD/JPY had gained nearly 2.00% over the previous five trading sessions, highlighting ongoing weakness in the yen and showing that the U.S. dollar continues to gain ground.

The USD closed red last week despite a seemingly bullish backdrop but it made up for it this week, driven by a strong breakout in USD/JPY.

Heading into the week ahead, the macro calendar is quieter. But for as long oil remains supported, the US dollar forecast will remain bullish. Not only will oil prices be important for determining the direction for the dollar and USD/JPY, but bond yields too, and by extension, risk appetite.

A divided BOJ hike has left the yen under pressure and Nikkei bid, with Ueda now needing to convince markets that another two-and-a-half hikes by mid-2027 are justified.

A hike is widely expected tonight but like the Fed yesterday, the bigger question is what else might be in store.

The USD broke out after the rate hike announcement but perhaps the bigger question to USD trends is what the Bank of Japan does later tonight.