JPY/USD Falls Below 160.00, Reaching Lowest Level Since 1986

The Japanese yen (JPY) remains under heavy selling pressure on the first day of the new week, pushing USD/JPY above the psychological 160.00 mark for the first time since October 1986. The wide divergence between the Bank of Japan’s policy outlook and the Fed’s hawkish expectations continues to weaken the yen amid a relative scarcity of liquidity amid a holiday backdrop for Japan’s markets. Still, extremely overbought conditions and concerns that Japan may intervene to support its currency helped limit further losses for the yen. Beyond this, slight losses in the US dollar (USD) have limited the pair’s gains, although any meaningful yen appreciation remains elusive amid uncertainty over the outlook for Bank of Japan interest rates.

In addition, the U.S. personal consumption expenditures (PCE) price index released on Friday once again confirmed expectations that the Federal Reserve (Fed) will wait until September to cut interest rates. This should continue to be a tailwind for the dollar. Beyond that, the generally positive risk tone could undermine the yen’s safe-haven properties and suggest the path of least resistance for the USD/JPY pair is to the upside ahead of the crucial two-day FOMC policy meeting starting on Tuesday. Investors this week will also focus on important U.S. macro data released at the beginning of the new month, including Friday’s closely watched non-farm payrolls (NFP) data, before making new directional bets.

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