USD/JPY Drifts Lower But Yen Weakness May Persist

USD/JPY drifts lower as U.S. yields ease, but positioning hints at further yen weakness

USD/JPY drifts lower as U.S. yields ease, but positioning hints at further yen weakness

Technical Analysis:
USD/JPY edged marginally lower on Monday, moving within a relatively tight daily range of 143.98–144.95, as Treasury yields softened following a New York Fed survey indicating a moderation in consumer inflation expectations. The one-year consumer inflation expectation dropped to 3.2% in May, prompting yields to retreat modestly and buoying U.S. equity markets. Yet, despite the softer yields, USD/JPY failed to sustain a meaningful downside break, reflecting a market caught between competing short-term factors such as easing inflation concerns, cautious optimism around U.S.-China trade negotiations, and speculation surrounding Japanese fiscal stimulus.

Technical barriers remain influential for USD/JPY, with the pair capped firmly by its 55-day moving average near 144.97, which has consistently restricted upside attempts since early June. This resistance level closely aligns with previous highs from May 28 and June 6, forming a robust near-term ceiling. On the downside, key support emerges from the Ichimoku cloud base at 144.46, closely followed by the conversion line at 144.35, and reinforced by the 200-hour moving average and June 5 high near 143.91–143.99. With the daily range narrowing, a decisive breakout above 145 could catalyze further short-covering, paving the way toward critical resistance at the Ichimoku cloud top at 145.59.

Positioning data suggests underlying yen weakness may persist in the lead-up to the Bank of Japan’s June meeting. CFTC reports reveal speculative accounts have steadily reduced yen long positions since late April, while new yen shorts have emerged, evidenced by rising futures open interest which peaked recently. Interestingly, asset managers have sustained their net yen longs, hinting at limited downside potential in USD/JPY unless significantly bullish dollar factors emerge. Should upcoming U.S. economic data or renewed fiscal stimulus discussions in Japan alter sentiment, a move above 145.59 could target the May peak at 148.65. Conversely, only a clear downside breach below 142 would meaningfully reverse the current bearish yen sentiment.