USD/JPY outlook: Middle East tensions and BOJ rate hike expectations to pull in opposite directions

The dollar-yen rate is expected to trade in a tug-of-war from tonight through tomorrow - safe-haven dollar buying driven by escalating Middle East tensions versus yen buying fueled by Bank of Japan rate hike expectations. The forecast range is 159.00 to 160.20 yen.

U.S. forces carried out intensive airstrikes against Iran on the 1st, prompting Iranian retaliation against U.S. military facilities in the Middle East and escalating conflict. Renewed tensions pushed U.S. crude futures higher, with rising inflation pressure from elevated oil prices supporting U.S. long-term interest rates and the dollar.

However, above 160 yen, caution over potential intervention by Japanese monetary authorities is likely to cap aggressive dollar buying and yen selling. In addition, BOJ Policy Board member Hajime Takata signaled in a speech that the central bank entered a new phase requiring agile rate hikes, stoking speculation of an early rate increase or accelerated tightening - helping limit excessive yen selling.

With the August ISM Manufacturing Index and July JOLTS data released on the 1st missing market expectations, attention turns to the August ADP Employment Report and the Federal Reserve's Beige Book, both due tonight Japan time.

Source: MINKABU PRESS

*Translated by generative AI. Click here for the original article.