USD/JPY tests July 2024 high amid diverging rate expectationsUnited States Dollar / Japanese YenCMCMARKETS:USDJPYcmcmarketsEven after the Bank of Japan raised interest rates by 25 basis points during the week ending 19 June, USD/JPY has continued to rise, indicating that the Japanese yen remains under pressure against the US dollar. The move reflects the market’s view that the Bank of Japan is unlikely to deliver many more rate hikes, with only around a 70% chance of one additional increase being priced in by December. Meanwhile, markets have adopted a much more hawkish view of the Federal Reserve. Fed funds futures are now pricing in nearly a 90% probability of a rate hike by the end of 2026. As a result, US-Japan rate differentials are expected to remain wide, continuing to support the dollar against the yen. USD/JPY is now approaching a key resistance level near 161.75, corresponding to the high reached in July 2024. A sustained move above that level may indicate scope for further gains, with the next minor area of technical resistance at 164.50. Beyond that, the next major resistance region does not appear until around 180. The main risk to this outlook remains intervention by the Japanese authorities to limit further yen weakness. However, the last intervention effort only managed to push USD/JPY back towards the 155.5 area before the move quickly reversed. This may suggest that intervention alone could struggle to alter the broader trend. Changes in expectations for Federal Reserve or Bank of Japan policy could also influence the outlook. 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.