USD/JPY returns to gains, what to do in the market outlook?

As the world's major central banks have entered an era of monetary tightening, the Bank of Japan has gone the opposite way and is still firm in its monetary easing policy, especially the policy differences and interest rate differentials arising from the hawkish stance of the Federal Reserve. Yesterday's rise refreshed the weekly high of 130.19. Since the beginning of the week, the exchange rate of the United States and Japan has risen by nearly 2.5%.

​​

On Wednesday, the Federal Reserve’s “thesis on pausing interest rate hikes” in September was frequently refuted, and expectations for interest rate hikes rose again. More Fed officials expressed the need to continue raising interest rates. San Francisco Fed President Daly said the central bank should continue to tighten policy until it quells inflation, and she favored raising rates to 2.5 percent by the end of the year. St. Louis Fed President Bullard called for a rate hike to 3.5%. Former New York Fed President Dudley also believes that the Fed will continue to raise interest rates to curb high inflation, and is not optimistic about the idea of ​​​​suspending action in September

While the market now expects the Fed to raise rates by a total of 100 basis points at the next two meetings, the Bank of Japan is doing quite differently. The Bank of Japan said that even a depreciation of the yen will not change its policy of maintaining loose money, so the momentum of the yen's depreciation is unlikely to be reversed in the short term

​​

The current sell-off of the yen has become the most popular macro transaction this year. The rise in US bond yields has caused major investors to sell the yen and buy the higher-yielding dollar. Next, before the US-Japan monetary policy divergence narrows, the Japanese The devaluation of the dollar is inevitable. There are even many mainstream market views predicting that by the end of this year, the yen will depreciate to the level of 140-150 yen per dollar.

After the U.S. ISM manufacturing index unexpectedly rose yesterday, the USD/JPY rose to refresh the weekly high of 130.19 again. Since the beginning of this week, the exchange rate of the U.S. and Japan has risen by nearly 2.5%, and the rise is following the U.S. 10-year Treasury bond The rise in yields. This is because the U.S. dollar is more certain than the Japanese yen and treasury bonds, so most investors choose to sell assets such as U.S. bonds and Japanese yen to hold the dollar

​​

Another index, the improvement in ISM manufacturing may also allow the Federal Reserve to continue to implement a higher interest rate policy. This data suggests a strong economic recovery, which is positive for the US index.

​​

Market outlook focuses on non-agricultural

​​

Next, the US non-farm payrolls report (NFP) released this Friday may reignite the market's enthusiasm for the Fed to continue raising interest rates by 5. The market expects that the number of new non-farm payrolls in the United States in May will be 325,000. Once the final data exceeds this expectation, I am afraid it will push the exchange rate of USD/JPY further higher.

​​

Looking ahead, U.S. economic data is expected to continue to support USD/JPY gains amid the deepening divergence between the policy paths of the Federal Reserve and the Bank of Japan. Meanwhile, the current sell-off of the yen has become the most popular macro trade of the year, and the bearish sentiment among retail investors will continue as they have been net short in the yen for most of the year.

At present, the USD/JPY has been continuously rising, and the strength of the rise is strengthening. After the continuous correction in May, the USD/JPY has stabilized and reversed around the previous low of 126.80, and the top is expected to challenge the previous high of 131 again. Continue to break high before the next stage of the target is around 140-150, the main selection strategy should be based on buying on dips