Event to watch today:
21:00 EET. USD – Release of Fed meeting minutes
USDJPY:
The yen is receiving more sustainable fundamental support from Japan’s government bond market. The yield on 10-year Japanese government bonds has approached 3%, while market participants have strengthened expectations of another Bank of Japan rate increase. This shift is gradually reducing the appeal of interest-rate differential trades and making further yen weakness less one-sided.
At the same time, the US side of the pair is losing some of its previous advantage. US Treasury yields have declined from recent highs, while weaker employment data and more moderate inflation have led the market to scale back expectations of a Federal Reserve rate increase. This reduces support for the dollar specifically against the yen, which is particularly sensitive to changes in the relative yield dynamics of the two countries.
For USDJPY, the base case points to further downside. The risk of renewed action by Japanese authorities remains an additional constraint on the pair’s upside following the recent coordinated intervention, but it is not the main argument. The key factor is the shift in interest rate and yield expectations. If the Federal Reserve minutes fail to restore demand for the dollar and expectations for the Bank of Japan remain intact, the balance may gradually shift further in favor of the yen.
Trading idea: SELL 159.40, SL 159.75, TP 158.55
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