- USD/JPY continues to attract buyers below ¥155 as yield differentials and carry dynamics favor the U.S. dollar.
- Despite near-term noise, the broader setup still points toward renewed upside over time.
The US dollar spent the first few hours of the trading session on Tuesday falling against the Japanese yen. But as we have seen multiple times, there is a certain amount of interest in the US dollar below the 155 yen level. The 155 yen level, of course, is a large, round, psychologically significant figure, and it's an area where I think you have a lot of noise out there waiting to come into the picture and perhaps support the greenback against the Japanese yen.
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After all, the Bank of Japan, although it is having to deal with a little bit of inflation for the first time in ages, is still in a situation where it cannot tighten monetary policy too much. At the same time, you have the Federal Reserve, which is likely to cut rates sometime in 2026, but it is still very data dependent. Inflation in the United States isn't going anywhere. That is a misnomer.
Interest Rate Differential and Carry Trade Support
I think at this point in time, the markets will be heavily disappointed if they are looking for consecutive rate cuts coming out of the Federal Reserve. With that being the case, the interest rate differential continues to favor the US dollar, and given enough time, we should see renewed upward momentum in this market.
While you wait, you even get the ability to get paid at the end of every day via the carry trade. So all things being equal, I do like this pair, and I have liked this pair for most of the year. If we do break down from here, the 50-day EMA is currently at the 154 yen level, followed by another support level in the form of 153 yen, which has been important a couple of times.
To the upside, I still see the 158 yen level as a bit of a barrier to get above and probably something that takes some work to accomplish. But I do think eventually we will try to do that. I hold this pair and have been holding this pair since probably July or so, and as a result, I have built up quite a bit of cushion via swap to make this a profitable trade. The beauty of this setup is that it pays you, and every time the US dollar drops to offer a little bit of value, I suspect traders continue to think about that again.
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