USD/JPY is likely to retain a dip-buying bias as weakness in AI-linked shares, U.S.-Iran tensions and a hawkish Fed continue to underpin demand for the high-yielding dollar. Stronger-than-expected June import prices, along with higher oil, reinforced the Fed's inflation concern, helping keep Treasury 2-year yields and the dollar supported on Friday.

A series of higher lows over the past week underscores USD/JPY's bullish bias, as does a two-month streak of closing near or above a rising 21-DMA. That average, now near 162.00, is reinforced by the Tenkan-sen, making the level an important gauge of underlying momentum. Even so, conviction behind the rally appears limited. Declining volatility and subdued turnover suggest few are willing to chase USD/JPY higher, particularly as Japanese officials step up rhetoric regarding rising JGB yields and yen weakness.

As a result, price action has become increasingly compressed beneath its year-to-date high. The pair is effectively forming a wedge pattern bounded by the July 3 low at 160.48 and the July 1 and year-to-date high at 162.84.

A break above the wedge ceiling, the 162.84 YTD high and 163.00 option barriers would challenge favorable July yen seasonals and could trigger a stronger upside move.

Conversely, a daily close below the 21-DMA and Tenkan-sen would signal a potential bearish shift ahead of the July BOJ meeting, an event historically associated with heightened intervention risk.
Yen


(Robert Fullem is a Reuters market analyst. The views expressed are his own.)