Japanese Yen: Yield pressure risks fresh losses against US Dollar – OCBC

OCBC's Christopher Wong notes the recent rebound in USD/JPY, driven by higher US Treasury yields, a stronger US Dollar, and elevated oil prices. Despite expectations of further BOJ normalization, he points out that these factors have supported the pair, though upside is still limited. He highlights a tentative bullish divergence on technicals and emphasizes that US CPI will be crucial in determining whether the recent USD/JPY surge persists or reverses.

The article discusses the impact of US CPI on the USD/JPY pair, suggesting that an upside surprise, particularly in core inflation, could push US Treasury yields higher and prolong the USD/JPY rebound. Conversely, a softer print may undo recent rates repricing and bolster the Japanese Yen's recovery theme. The article also mentions the significance of near-term direction being sensitive to the US rates, while expectations for further BOJ normalization will continue to counterbalance sustained USD/JPY upside.

Technical caution for a dragonfly doji - bullish reversal risk has played out, last seen at 154.25 levels. Bearish momentum remains intact, but there are tentative signs of it fading, with RSI rising from oversold conditions. The article flags the potential risks of bullish divergence on MACD and RSI, cautioning that it is still too early to confirm.

The resistance levels are at 155 (23.6% fibo retracement of 2026 low to high), and 156.70 (38.2% fibo). On the support side, the article mentions 153 and 152.20 levels (2026 low). The FXStreet Insights Team, a group of journalists, provides this market observation, which includes notes by commercial analysts and additional insights from internal and external experts.

The article also touches upon the steady performance of AUD/USD near mid-0.7100s in the Asian session, with the August PPI report reinforcing Fed rate-hike bets and strengthening the US Dollar, which negatively impacted AUD/USD. However, hawkish expectations from the Reserve Bank of Australia (RBA) limited AUD/USD losses. The article notes that USD bulls are now anticipating the release of US consumer inflation figures before placing fresh bets.

USD/JPY remains lower ground toward 154.00 in the Asian session after strong Japanese PPI data bolstered a more hawkish BOJ repricing and supported the Japanese Yen. However, the downside is capped as the US Dollar maintains its overnight gains ahead of the latest US consumer inflation data. Gold continues to trade in the sub-$4,400 zone per troy ounce, as the yellow metal maintains the offered bias following the release of US inflation figures and amid the decent advance in the US Dollar.

The US Bureau of Labor Statistics will release the August Consumer Price Index data on Friday, with any divergence from analysts' estimates potentially influencing the Federal Reserve's policy outlook and impacting the US Dollar's valuation.