USD/JPY may have more room to rise over time, given rising Treasury-JGB yields spreads promoted by Fed policy normalization plans versus BOJ stasis, but there is some risk that the initial U.S. tightening next year has been priced in.
Net spec USD/JPY longs have reached their most extreme since prices began tumbling from 2018 highs, according to the latest CFTC data.
Friday and Monday's U.S. data confirmed inflationary pressures the Fed has to deal with as they undo pandemic emergency easing measures nL1N2RS192, beginning with tapering asset purchases, but markets have already priced in more than two rate hikes next year and at least two more in 2024 on the eurodollars strip.
But, that's still 50bp below where the target rate stood before the pandemic.
If USD/JPY fails to break cleanly above October's multi-year high and the November 2017 key high at 114.695/74 on EBS in response to Wednesday's Fed meeting and Friday's payrolls report, there could be further uptrend consolidation above the 21-day moving average, last at 113.24, and the 38.2% Fibo of October's rise at 113.21.
A close above 114.74 and 115 options resistance would open the door to December 2016's high at 118.66 nL1N2RS0WT.
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