USD/JPY Edges Higher as Treasury Yields Rise, Eyes on Key Resistance
USD/JPY climbed to the top of its 157.90-158.55 range on Wednesday, supported by a steepening U.S. Treasury yield curve and renewed demand for the dollar. While 10-year yields remained steady after Fed minutes affirmed a cautious stance on rate cuts, expectations for higher yields following President-elect Trump’s inauguration continued to underpin the greenback. However, yen crosses faced pressure as rising global bond yields dampened risk appetite, partially offset by investor flows in Tokyo during the Asian session. Market attention is now focused on resistance at 158.85, the July 16 high, which could trigger increased volatility if breached.
Technical Analysis
Technically, USD/JPY remains on the verge of a breakout. Immediate support lies at 158.09, the December high, and 157.80, the December 19 high. A sustained break above the 158.55 range top could target the July high of 158.85 and potentially the closely-watched 160 level. Options markets reflect growing gamma demand ahead of Thursday’s BOJ regional report and U.S. nonfarm payrolls on Friday, signaling heightened expectations for near-term volatility. A failure to hold above 157.80 would suggest a potential pullback toward lower supports.
Market Outlook
Fundamental risks remain in play for USD/JPY. Rising global bond yields and expectations for U.S. tariffs are pressuring markets, while speculation about a potential BOJ rate hike in January adds another layer of uncertainty. If Friday’s U.S. jobs report supports further dollar strength, USD/JPY could extend its rally, though intervention risks may rise if the pair approaches 160. Meanwhile, data from the BOJ branch manager meeting and overtime pay on Thursday could offer additional insights into Japan’s economic trajectory and its potential impact on yen positioning.
