USD/JPY Outlook: Slightly positive, but likely to move sideways as the rate is above its recent average but lacks a clear driving factor, trading near mid-range.
Key drivers:
• Rate gap: The U.S. Federal Reserve's recent decision to halt rate cuts contrasts with the Bank of Japan's move to increase its policy rate, creating a more favorable environment for the USD.
• Risk/commodities: Oil prices are well above their average, which can pressure the JPY as Japan is a major importer of oil, impacting its trade balance.
• One macro factor: Japan's recent fiscal policy proposals raising concerns about fiscal sustainability could cause uncertainty about future economic stability.
Range: The USD/JPY is likely to drift within its recent range, as external factors are influential but not dominant.
What could change it:
• Upside risk: A stronger U.S. economic data report, like an improvement in ISM manufacturing PMI, could boost the USD.
• Downside risk: Increased speculation surrounding Japanese government interventions could support the JPY and pressure the USD.
