Bias: bullish-to-range-bound, as USD/JPY sits above its 90-day average and in the upper half of the 3-month range.
Key drivers:
Rate gap: The Fed is expected to cut rates toward neutral, while BoJ has tightened, narrowing the USD’s yield edge versus the yen and keeping real yields in a delicate balance.
Risk/commodities: Oil remains above its long-run average with notable volatility, which tends to support dollar funding demand and keeps USD/JPY firm, even as risk appetite ebbs and flows.
Macro factor: Tokyo inflation cooled, reinforcing the BoJ path to normalization and keeping yen sensitive to policy signals, especially if inflation shifts again.
Range: USD/JPY is likely to drift near the upper end of the 3-month range, with occasional tests of the high boundary but staying within established bounds as markets digest policy signals.
What could change it:
Upside risk: stronger US payrolls or a harsher Fed stance that reinforces dollar demand.
Downside risk: softer US data or a BoJ signal of policy pause or slower normalization, boosting the yen.
