USD/JPY Bulls Turn Cautious Near 159.00, Highest Level Since April

USD/JPY was trading in a narrow range during Friday’s Asian session, consolidating after hitting its highest level since late April near 159.00 in the past hour. Fundamentals support the pair’s recent gains, but intervention concerns could limit upside.

Disappointment in the market could continue to weaken the yen as the Bank of Japan has not committed to raising interest rates in the near term. In addition, data released in early Asian trading on Friday showed that Japan’s core consumer price index (CPI), which excludes food and energy prices, slowed for the ninth consecutive month, with the annual rate of increase falling to 2.1% from the previous value of 2.4%. This increased uncertainty over whether the Bank of Japan will raise interest rates in July or later this year, coupled with underlying bullish sentiment in global equities, curbed safe-haven demand for the yen, boosting USD/JPY.

On the other hand, the US dollar was close to the top of its trading range this week due to a sharp rise in US Treasury yields overnight. This led to a further widening of the US-Japan interest rate gap, becoming another factor weighing on the yen and providing support for USD/JPY. At the same time, investors remained wary as they speculated that Japanese authorities would take intervention measures to support their currency. In addition, bets on the Federal Reserve (Fed) starting a rate cut cycle in September are rising, which may curb further gains in USD/JPY.

Nevertheless, USD/JPY is still on track to close higher for the second consecutive week as investors are now looking forward to some meaningful impetus from the preliminary global Purchasing Managers Index (PMI). Apart from this, the release of existing home sales data from the United States, as well as US bond yields and broader market risk sentiment, may further promote short-term trading opportunities on the last day of the week.

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