The dollar is strong, and the yen is strong as well. The USD/JPY seesaws between 157 and 159 yen.
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The dollar is strongest this year. But the yen is strong as well.
Because the two are both strong, the USD/JPY pair tends to move within a range of 157–159 yen.
Do not chase the highs; the basic approach is to look for pullbacks near 157 yen from below.
If you want to take the dollar's strength at face value, the euro-dollar pair, which combines a weak euro, is more likely to rise.
■What happened (9/21–10/2)
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9/23–24: U.S. rate hike expectations surged, USD/JPY rose to 159.04
9/25: Japanese and U.S. finance ministers confirmed that the yen is undervalued, and it fell back to 157.28
9/29–30: U.S. long-term rates rose, broad dollar strength; EUR/USD hit its year-to-date low
9/30: U.S. core PCE came in below expectations, hitting a weekly low of 156.35
10/1: Dollar Index rose to 101.85, hitting a new year-to-date high
10/2: Tokyo weekly high at 158.46. U.S. jobs data showed +29,000 (well below expectations),
unemployment rate at 4.2%, pulling USD/JPY down to 156.95, then closed at 157.91
The probability of a rate hike at the October FOMC (10/27–28) fell to about 15%
■This week's thinking: currency pairs are a "tug of war"
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USD/JPY movement = relative strength of the dollar minus strength of the yen
［Dollar strong］━━━━━●━━━━━［Yen strong］
← equal strength → mid-point, indicating a range
Yen weak Yen strong
Dollar strong: USD/JPY tends to rise; tug of war leads to limited movement (we are here now)
Dollar weak: no clear direction; USD/JPY tends to fall
POINT 1: Currency pairs are a tug-of-war between two nations
Even if the dollar is strong, if the yen is equally strong, price movement remains limited.
POINT 2: Strength is measured by the index
The dollar index compares the dollar to major currencies; the same yardstick exists for the yen as well.
Looking at only one side does not reveal the tug-of-war outcome.
POINT 3: When both are strong, ranges tend to form
Right now, both are in the high price area. They tend to bounce within about two yen up or down, and attempting a breakout can backfire.
POINT 4: Strong currencies pair with weak counterparts
If you want to ride the dollar's strength, the euro-dollar pair with a weak euro tends to rise more readily.
Focus on pullbacks for USD/JPY.
■Scenario