Invest in USDJPY up to its all-time high of 164.00

USDJPY is currently hovering around 159.30, with enough fuel to drive its rally further. The dollar’s key pillar of support remains a significant monetary gap between the Federal Reserve and the Bank of Japan. The Fed continues to hold interest rates at 3.75%, while its Asian counterpart keeps them at just 1%. And this gap may only widen. The latest inflation report from the United States has reinforced market concerns over potential policy tightening. The annual Personal Consumption Expenditures (PCE) index increased to 3.7%, while the core reading held steady at 3.3%. This has sparked a fresh wave of September rate hike forecasts, with traders estimating a 40% likelihood of such a move next month. They also believe that at least one increase is guaranteed by the end of the year. These expectations help US Treasuries and the dollar stay afloat.

Meanwhile, the Bank of Japan’s (BoJ) anticipated hike has already been priced in. According to a Reuters survey, 57% of economists predict a 25‑basis‑point increase in September, bringing the rate up to 1.25%. However, this would change nothing, as the policy divergence between the two regulators would still be substantial. Moreover, two-thirds of respondents viewed summer currency interventions as a temporary boost for the yen. Its fundamental weaknesses remain acute.

Japan’s fiscal situation is another tailwind for the pair. The country’s 10-year bond yields have recently approached 3%—a level not seen in nearly three decades. Rising debt servicing costs keep the BoJ’s hands firmly tied, allowing only modest hawkish steps.

The final recommendation:

— Buy USDJPY at the current price of 159.35, targeting 164.00 within one month.

— Place a Stop Loss order at 155.00 to manage risks if the market plays against us.