Last week, the USD/JPY currency pair rose as a result of increased risk appetite and yen selling, initially driven by rising Japanese stock prices.
Despite some minor setbacks midweek, the dollar surged due to remarks from Federal Reserve officials indicating a hawkish stance on interest rates, which led to higher US Treasury bond yields.
Additionally, technical targets and strong economic indicators pushed the dollar up to 140.73 by the end of the week, resulting in a three yen drop in the Japanese currency’s value.
While there is generally a correlation between the rise of the Nikkei and yen selling in both the yen crosses and the USD/JPY, the Japanese stock market’s record high was also strongly affected by increases in Japanese equities purchased by overseas investors.
With the start of a new month, major employment-based economic indicators are to come out of the US, with job openings on Thursday followed by Friday’s non-farm payroll announcement.
These will be important indicators that could influence whether the Federal Reserve will raise interest rates in June, along with statements from Fed officials regarding various economic indicators and the Beige Book report on Thursday.
Currently, the probability of a 0.25 percentage interest rate rise stands at 69 per cent. Unless significant changes occur from now until the May Consumer Price Index release on June 13, it seems likely the Fed will continue to operate on a 0.25 percentage interest rate rise basis.
Amid this, the market was wary of intervention by Japan to buy yen, causing USD/JPY to fall to 139.60 during early New York trade.
Later, the pair rebounded to 140.12 around 10am as 10-year bond yields rose, but this was not enough to sustain the USD/JPY’s upward trend, and it fell again to 139.58. In the afternoon, the pair traded in a range between 139.80 without any clear direction.
There is some uncertainty about the passage of a US debt ceiling agreement, as well as caution regarding Japanese intervention in the foreign exchange market if the pair rises above 140 yen. In light of this, USD/JPY was trading cautiously and closed at 139.76 at 4pm.
The expected USD/JPY trading range this week is 138.00 (support) and 141.00 (resistance).