Jan 8 (Reuters) - USD/JPY remains bid and its range is likely to ratchet higher on fresh investment flows, the Bank of Japan potentially keeping rates on hold early this year, a strong U.S. economy and higher long-end Treasury yields.
Admittedly, risks remain including the key U.S. December jobs report on Friday and the BOJ Policy Board meeting around mid-month.
On U.S. jobs, the risk looks to be for stronger-than-expected data. The Reuters poll projects a 160,000 rise in non-farm payrolls and unemployment unchanged at 4.2%. Most recent data has been strong nL1N3O30IN, nS0N3ME004, nS0N3ME003, and there is no reason to expect a weaker jobs report.
As to the BOJ, Tokyo is leaning towards no change in policy this month and possibly in March despite hawkish comments from Governor Kazuo Ueda Monday nL1N3O205U. Political pressure on the governor seems overwhelming and the policy board appears divided, especially ahead of the new U.S. Trump administration and its policies.
Japanese importer demand and fresh investment flows suggest shallow downside for USD/JPY and most major crosses. The former especially with inflation abroad and in many raw materials and goods continuing to raise the cost of imports. As to Japanese investment overseas, the "new" NISA has already resulted in fresh flows this year, and will likely continue this month.
Wider long-end JGB-U.S. Treasury interest rate differentials also argue for USD/JPY support on dips. The 10-year spread surged to 354 basis points Tuesday on fresh U.S. supply, the widest since May 2024, and looks poised to widen more.
Of course Japanese FX intervention remains a threat but most in Tokyo do not see actual action until USD/JPY trades to 160, if not the 161.96 multi-decade high on July 3, 2024.
For more click on FXBUZ
USD/JPY: https://tmsnrt.rs/4h8jlKv
JGB-US Treasury 10-year interest rate differential: https://tmsnrt.rs/40zkjdn
BOJ keeps rates steady: https://reut.rs/3P4aygz
(Haruya Ida is a Reuters market analyst. The views expressed are his own. Editing by Sonali Desai)
((haruya.ida@thomsonreuters.com;))
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