Jan 3 (Reuters) - USD/JPY fell within its recent range as the dollar retreated against other currencies in the face of a U.S. stocks rally, while greenback bulls lacked conviction as they awaited the return of post-holiday liquidity.

In its losses against the yen, the dollar failed to garner lasting support after data showed ISM manufacturing PMI rose to its highest level since April 2024 and Richmond Fed President Thomas Barkin warned about upside inflation risks.

Though flows the last two days have leaned in the greenback’s favor and against yuan proxies, speculative cash positioning in USD/JPY has been limited, leaving it to meander beneath the 158 level. Support is at the 156.94 9-day exponential moving averge and 155.62 weekly cloud top.

Option accounts appear more optimistic about USD/JPY prospects into next week’s U.S. jobs data. One-week risk reversals, which incorporate the payrolls report, fell toward a three-week low after the ISM data, a sign yen call demand is waning.

A move above the 158.09 December high and toward the 158.85 July 16 high may prompt a rise in volatility amid expectations that bullish momentum and intervention risks will rise in tandem.

Longer-term flows will not likely return until after central bank meetings and the inauguration of President-elect Donald Trump at the end of the month.

Among the issues facing the new administration is how to manage the flow of Japanese direct investment. On Friday, Nippon Steel decided to file a lawsuit against the U.S. government to challenge President Joe Biden’s order to block its acquisition of U.S. Steel. How that lawsuit progresses in the Trump administration may impact Japanese investment and hedging flows in the future.
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(Robert Fullem is a Reuters market analyst. The views expressed are his own.)