Dollar bulls eye a 157-plus close vs yen, US data to test BoJ threat

Dip buyers supported USD/JPY after its latest retreat on Tuesday as Treasury yields rebounded, but a close above 157 and new May highs in Treasury-JGB yield spreads look key for buyers risking a repeat of suspected BoJ interventions near May 1 and April 29’s 157.99/60.245 peak.

US core PCE on Friday is eyed next, but monthly and yearly rates are seen unchanged from April’s 0.3% and 2.8% readings. That may mean next week’s ISMs, JOLTs, and jobs reports are key to USD/JPY clearing 158 and 160, regardless of intervention risk.

IMM specs ramped up their net long USD/JPY positions in the week to last Tuesday amid the big dip to 153.60 on May 16, and are looking for a close above the 61.8% Fibo of the 160.245-151.86 intervention-led slide at 157.04 to target May’s 157.99 high by the 76.4% Fibo at 158.27.

May’s recovery has been slowed by 2-year Treasury-JGB yield spreads only recovering about half of their April-May fall. But even without higher spreads or new USD/JPY highs, existing spreads make USD/JPY longs profitable.

The sharp drop in expected Fed rate cuts this year to just 34bp and the 26bp of BoJ hikes being priced in imply a roughly 5% Fed funds rate and 0.34% BoJ bank rate by year-end, leaving plenty of carry.

(Randolph Donney is a Reuters market analyst. The views expressed are his own.)