Japanese Yen: Two-way risks into BoJ meeting – OCBC

OCBC strategist Christopher Wong notes USD/JPY has rebounded as higher UST yields, a firmer USD and rising Oil offset support from Bank of Japan (BoJ) tightening expectations. He warns against extrapolating gains ahead of Friday’s BoJ meeting, with markets almost fully pricing another hike. Wong sees USD/JPY supported if yields and Oil stay elevated, but says less hawkish Fed or BoJ guidance could revive Japanese Yen (JPY) strength.

Rebound faces Fed and BoJ event risks

"USD/JPY rebounded as higher UST yields, a firmer USD and another rise in oil offset some of the recent support from BoJ tightening expectations. Higher oil is also an unfavourable terms-of-trade development for Japan."

"Still, we would be cautious about extrapolating the rebound ahead of Friday’s BoJ meeting, with markets almost fully pricing another hike and speculative positioning having shifted net long JPY for the first time since February."

"USD/JPY may still stay supported if UST yields and oil stay elevated, but Fed and BoJ event risks should keep price action two-way. A less hawkish Fed or BoJ guidance pointing to further normalisation would bring the JPY-positive theme back into focus."

"Our earlier technical caution for bullish divergence of MACD played out. Last seen at 154.40 levels. Bearish momentum intact though there are some signs of it fading while RSI rose from oversold conditions."

"We still caution for interim risks of bullish divergence on MACD and RSI. But as bearish crossovers remain intact, we continue to monitor price action and look for rallies to fade into. Resistance at 155 (23.6% fibo retracement of 2026 low to high), 156.70 (38.2% fibo). Support at 153, 152.20 levels (2026 low)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)