USD/JPY likely in 153-155 range into BOJ, risk events
July 29 (Reuters) -Tokyo playerssee USD/JPY in a core 153-155 range into this week's risk events including policy announcements by the Bank of Japan andU.S. Federal Open Market Committee, and the U.S. July jobs report.Some volatility is expectedwith markets likelyto remain relatively thin.
USD/JPY has traded 151.95-154.74 since July 25. The dropto 151.95 was likely an outlier as players rushed to get out of JPY-funded carry trades last week nL1N3JF01M, nL1N3JA02A, nL1N3J003D.
The upside appearsto be capped at 155.00 with massive option expiries at this strike Tuesday and Japanese exporters looking to sell rallies again. Large expiries are seen lower downthis week too, and should help limit declines.
The market is also still short yen.CFTC IMM CTA data continued to show large short-yen positioning as of July 23 nL6N3JI0L9.Weak JPY shorts pared positions as USD/JPY plungedfrom a July 3 high of 161.96 but those in JPY-funded carry tradesfrom earlier this year are still short.
That said, if the yen continues to strengthen, currency losses would eventually outweigh any profitson still wide Japan-U.S. interest rate differentials. With the BOJ on the path to a more hawkish stance, albeit gradually, such positions would become increasingly unprofitable nL1N3JF07F.
As to the FOMC, the market is now expecting a cut in the Fed's policy rate in September and likely another this year nS0N3IF01N, narrowing the Japan-U.S. rate gap further. This seems especially so after benign PCE datanL1N3JI0G0.
The U.S. jobs report on Friday will be key beyond this week.Expectations are for non-farms payrolls to rise by only 175,000 and the unemployment rate to remain at 4.1%.
For more click on FXBUZ
USD/JPY: https://tmsnrt.rs/4cXgeTL
USD/JPY nearby option expiries this week: https://tmsnrt.rs/4cQu5vb
Japan-US 2-year interest rate differential: https://tmsnrt.rs/3LFr58W
Haruya Ida is a Reuters market analyst. The views expressed are his own. Editing by Sonali Desai
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