Is the USD/JPY rallying on dips to continue? If it recovers to the 162 yen level, next target is 163 yen
Dollar/yen recovers to the 162 yen level; yen weakness accelerates, market wary of FX intervention
USD/JPY recovers to the 162 yen level
USD/JPY rose to around 162.30 yen, resuming an upward trend after last week’s pullback.
Behind this, despite U.S. payroll data coming in below market expectations, the U.S. dollar has broadly strengthened.
Furthermore, with continued caution over Middle East tensions, the dollar as a safe haven has supported USD/JPY.
The biggest factor supporting a weaker yen is the interest rate differential between Japan and the United States
The primary reason USD/JPY continues to rise is the still-large Japan-U.S. interest rate differential.
The Bank of Japan (BOJ) is normalizing its policy, but Japan’s policy rates remain low compared with major countries.
Therefore,
the carry trade of borrowing in low-yielding yen and buying high-yielding dollars continues, and there has been no major change to the yen’s weakness.
Concerns about FX intervention are rising
As USD/JPY approaches multi-decade highs, market participants are increasingly wary of possible intervention by the Japanese government.
The government has reiterated that it will respond appropriately to excessive exchange rate fluctuations, but no intervention has occurred at present.
Some note the possibility of surprise intervention without prior warning.
MUFG anticipates an additional rate hike
Mitsubishi UFJ Financial Group (MUFG) analyzes that the market is underestimating the BOJ’s pace of rate hikes.
With prices still rising in Japan and government bond yields trending higher, the BOJ is expected to implement additional rate hikes.
MUFG projects,
- Next rate hike isSeptember
- Policy rate to reach1.5% by January 2027
as the expectation.
On the other hand, HSBC suggests USD/JPY will stay in the high range unless the U.S.-Japan rate gap narrows.
USD/JPY remains in an upward trend
USD/JPY has recovered to the 162 level and remains in a high range.
Technically, the uptrend remains intact, and as long as the rate gap does not shrink significantly, buy-on-dips remains favorable.
However, at near 40-year highs, the risk of FX intervention by the Japanese government and BOJ must be considered, and short-term volatile moves should be watched.
Summary
- USD/JPY has risen to the 162 yen level and remains in a high range
- U.S. dollar strength and Middle East tensions support dollar buying
- The Japan-U.S. interest rate differential is the main driver of yen weakness
- Market remains wary of possible surprise FX intervention
- MUFG sees a September rate hike and forecasts the policy rate at 1.5% by January 2027
- Technically, the uptrend remains intact
