Rising U.S.-Japan yields spreads and rising energy prices point to USD/JPY medium-term gains, especially after BOJ minutes highlighted continued policy divergence with the Fed nL1N1SE00E.
U.S. PCE is at the Fed's 2 percent target while the jobless rate has hit the lowest since 2000, suggesting that the Full employment mandate has been achieved. Williams nW1N1MN00P and Bostic nL1N1SB1GX suggested after Friday's employment report that the Fed remains on track to continue hiking rates. The main risk to further Fed tightening is a trade war, but the market is not overly anxious about this, despite U.S. and Chinese positions appearing to have widened at talks in Beijing last week. Meanwhile, rising rate spreads will underpin USD/JPY, as today's BOJ minutes nT9N1RI00K showed scant appetite for policy normalization.
Rising oil prices, their highest since 2014, favor U.S. producers versus big importers like Japanese, and a higher USD/JPY.
USD/JPY has found support by its 100-DMA, 108.69 last, since Friday's U.S. jobs report, but it looks unlikely to retake last week's 110.05 high by the 200-DMA at 110.20 before Thursday's U.S. CPI report. Once cleared, however, the downtrend from 2015's Abenomics peak, now near 112, will be pivotal.