What is next week's USD/JPY?
To put next week's USD/JPY in a very simple way: it's a high-stakes week where the yen may weaken further and we watch whether it will again reach 160 yen per dollar.
I condensed the points into three.
1. Why now is the dollar strong and the yen weak?
The U.S. economy is performing so well that the view that rate cuts (lowering interest rates) are still a while away has strengthened.
Because holding a higher-yielding dollar is advantageous, the move to sell yen and buy dollars continues, and nowhas risen to around 159.25 yen.
2. The event that will decide next week
Next week5/29 (Friday) night, the most watched price gauge in the U.S. (PCE deflator) will be released.
If the result is strong (prices high): it may be deemed that rate cuts are impossible after all, and the 160 yen level could be breached rapidly.
If the result is weak (prices falling): there could be relief for now, with a potential return to a slightly stronger yen (toward 158).
3. The thing to watch most carefully
If it approaches or breaks 160 yen, there is a high risk that Japan's government and the Bank of Japan will intervene in the foreign exchange market to stop the yen from weakening (forced dollar selling and yen buying).
When this is triggered, a sudden multi-yen drop (gará) can happen in an instant, so even if you chase higher, you must beware of abrupt declines.
In short: “the general bias is still bullish for the yen (yen weakness), but be wary of the Friday-night data release and sudden dips near 160 yen.”
I condensed the points into three.
1. Why now is the dollar strong and the yen weak?
The U.S. economy is performing so well that the view that rate cuts (lowering interest rates) are still a while away has strengthened.
Because holding a higher-yielding dollar is advantageous, the move to sell yen and buy dollars continues, and nowhas risen to around 159.25 yen.
2. The event that will decide next week
Next week5/29 (Friday) night, the most watched price gauge in the U.S. (PCE deflator) will be released.
If the result is strong (prices high): it may be deemed that rate cuts are impossible after all, and the 160 yen level could be breached rapidly.
If the result is weak (prices falling): there could be relief for now, with a potential return to a slightly stronger yen (toward 158).
3. The thing to watch most carefully
If it approaches or breaks 160 yen, there is a high risk that Japan's government and the Bank of Japan will intervene in the foreign exchange market to stop the yen from weakening (forced dollar selling and yen buying).
When this is triggered, a sudden multi-yen drop (gará) can happen in an instant, so even if you chase higher, you must beware of abrupt declines.
In short: “the general bias is still bullish for the yen (yen weakness), but be wary of the Friday-night data release and sudden dips near 160 yen.”