Week in review
The USD/JPY opened the week at 160.94. The EUR/JPY drove yen selling after the euro was bought back from early in the morning on 1 July as the prospect of the far-right winning a majority in the French legislative elections receded. The USD/JPY settled above 161 from European trading hours onward. It dropped briefly after the US ISM manufacturing index missed market expectations, but then rose above 161.50 as UST yields rose and the dollar strengthened due to growing expectations that Donald Trump was likely to win the presidential election in November. Yen selling continued on 2 July, but the USD/JPY became top heavy in overseas trading hours after Fed Chair Jay Powell made dovish remarks, such as saying inflation data was improving. However, on 3 July, the BOJ announced the 1Q output gap was -0.66% and revised down the figure for 4Q. This triggered yen selling and combined with a rise in UST yields worked to drive the USD/JPY up to a high for the week of 161.96. The pair became top-heavy just before 162, then fell back to above 160.50 as the dollar weakened after the ADP employment report, US new jobless claims, and the ISM non-manufacturing index all fell short of market expectations. Risk sentiment improved and share prices rose amid growing expectations that the Fed would move early to cut rates, and the USD/JPY rose back to below 161.50 supported by firm yen cross rates. It gradually fell to around 161 on 4 July amid a dearth of market participants during the Independence Day holiday in the US. The pair subsequently rose to the low 161 range but declined again on 5 July during the Tokyo session as dollar selling resumed. The USD/JPY was trading around 160.50 at the time of writing this report (Figure 1). The dollar weakened against most major currencies this week, with the Swiss franc and the yen gaining the least against the dollar. Share prices rose worldwide in a typical shift to risk on (Figure 2).
FIGURE 1: USD/JPY
Note: Through 13:00 JST on 5 July
Source: EBS, Refinitiv, MUFG
FIGURE 2: MAJOR CURRENCIES' RATE OF CHANGE VS USD THIS WEEK
Note: Through 13:00 JST on 5 July
Source: Bloomberg, MUFG
