USDJPY Breakout Could Push Yen Toward 160United States Dollar / Japanese YenCMCMARKETS:USDJPYcmcmarketsThe Japanese yen has been weakening against the dollar despite Japan’s rising interest rates. The USDJPY is now sitting just below resistance at 154.5. A breakout above that level could send the yen weakening further towards 156.5. The RSI is rising, suggesting that momentum remains positive and that the yen could continue to depreciate in the coming weeks. This comes despite the Bank of Japan contemplating further rate increases and despite US rates having softened, with spreads between the two countries contracting. The weakness in the yen comes as a surprise, as interest rate differentials continue to contract. The gap between the five-year yields in the United States and Japan has narrowed to approximately 2.5%, well below the nearly 4.5% highs seen in the fall of 2023. Yet, despite this narrowing spread, the yen is now weakening — a clear divergence from the trend observed since the beginning of 2021. This raises the question of whether the current bout of yen weakness is sustainable, or whether U.S. rates are likely to rise again. For now, the market appears to be betting on higher U.S. yields and a renewed widening of the rate differential. If U.S. rates do rise further and the spread begins to widen again, the USDJPY weakening may not stop at 156.5 but could extend towards 160. Such a move would be a major setback for the Bank of Japan, as it could force policymakers to consider raising interest rates simply to stem the currency’s decline. Written by Michael J. Kramer, founder of Mott Capital Management. Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction, or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.