USD/JPY fell overnight as the pair traded sideways this week. Pair was last at 154.30 levels, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

Daily momentum is turning mild bearish

“Geopolitical concerns, Ueda’s comments/ market positioning were some of the factors driving 2-way moves in USDJPY this week. Daily momentum is turning mild bearish while RSI fell. Risks skewed to the downside. Support at 153.80 (21DMA), 153.30 (61.8% fibo retracement of 2024 high to low) and 152 (200 DMA). Resistance at 155.70, 156.60 (76.4% fibo).”

“We still look for USD/JPY to trend lower, premised on Fed cut cycle while the BoJ has room to further pursue policy normalisation. On the data front Japan core core CPI rose this morning, alongside services PMI, reinforcing our view that BoJ should proceed with another hike next month. Divergence in Fed-BoJ policies should bring about further narrowing of UST-JGB yield differentials and this should underpin the broader direction of travel for USD/JPY to the downside.”

“Elsewhere, escalation in geopolitical tensions may also support safe-haven demand (positive JPY). That said, any slowdown in pace of policy normalisation - be it the Fed or BoJ - would mean that USD/JPY’s direction of travel may be bumpy or face intermittent upward pressure.”