On May 29, Nomura Securities pointed out that since the market has now digested the expectation of further interest rate hikes by the Federal Reserve, it will be difficult for the dollar to continue its recent gains against the yen.
The bank said that the market has now fully priced in expectations for a 25 basis point rate hike by the Fed in June or July, while pricing in rate cut expectations has also fallen, eliminating the gap in views between the Fed and investors.
At the same time, investors’ positions have further shifted to shorting the yen. The combination of these factors may limit the currency pair’s rise around 142, and it seems more difficult to rise to 145.
Meanwhile, USD/JPY could face greater volatility when any new factors emerge in the market pointing to a stronger yen, such as weaker-than-expected U.S. economic data.