USD/JPY spikes, then retreats – OCBC

USD/JPY jumped sharply to 148.27 overnight as safe haven trades unwind after Trump announced a 90-day tariff pause. We had cautioned for the risk of a short squeeze in our report yesterday. Pair was last at 145.78 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Fed-BoJ divergence favors yen

"Daily momentum is mild bearish while RSI fell. Risks skewed to the downside. Support at 145, 144.10 levels. Resistance at 147, 148.75 (21 DMA) and 150.30 (50 DMA). Cutting through the noise, we still look for USD/JPY to trend lower, premised on safe-haven flow and Fed-BoJ policy divergence (Fed rate cut cycle while the BoJ has room to further pursue policy normalisation)."

"Wage growth, broadening services inflation and upbeat economic activities in Japan should continue to support BoJ policy normalisation although tariff uncertainty may complicate BoJ outlook to some extent. Fed-BoJ policy divergence should bring about further narrowing of UST-JGB yield differentials, in turn underpinning the broader direction of travel for USD/JPY to the downside."