Synopsis:

ANZ provides insights into the potential movements of the USD/JPY currency pair in the upcoming week. Despite a narrower US-JP yield differential, which typically favors the Japanese Yen (JPY), the cross remains resilient and could climb higher or stay elevated. This trend is influenced by factors impacting the JPY, including a weaker outlook for China and ongoing speculation about future Bank of Japan (BoJ) policy measures.

Key Insights:

• USD/JPY Independence: The pair has been moving independently of the US-JP yield differential, continuing to rise even when the differential narrows.

• JPY Weakness Factors: A softer economic outlook for China and sluggish Japanese economic indicators are weakening the JPY. Additionally, the negative real wage growth in Japan (-2.4% y/y) adds to the currency's weakness.

• BoJ Policy Impact: BoJ Governor Ueda's recent remarks suggest a low probability of immediate policy changes, especially given the current wage trends in Japan. This scenario further dampens hopes for JPY strengthening.

• US Data's Influence: Upcoming US economic data could temporarily affect USD/JPY. If the data is unfavorable for the USD, a short-term dip below the 150 levels is possible.

• Trading Strategy: ANZ suggests that any dip in USD/JPY next week could be a fleeting opportunity for a long position in the pair. The overall trend seems to favor the USD against the JPY in the near term.

Conclusion:

ANZ foresees a potential brief decline in USD/JPY in the coming week, influenced by US economic data. However, the broader trend suggests continued resilience or even a rise in the pair, driven by ongoing JPY weaknesses and BoJ policy expectations. Traders might view any dips as opportunities for entering long positions in USD/JPY.