On Friday (August 21), during the European session, the USD/JPY pair consolidated around 159.00, with both the yen and the dollar showing relative weakness among major currencies. Japan's core CPI rose 1.8% year-on-year in July, in line with expectations and accelerating from 1.6% in June, reinforcing expectations of a Bank of Japan interest rate hike. Meanwhile, the US Treasury expanded its debt repurchase program to curb rising borrowing costs, continuing to weigh on the dollar.

Inflation data reinforced expectations of interest rate hikes, providing support for the yen.

Japan's core CPI (excluding fresh food) rose 1.8% year-on-year in July, in line with expectations and accelerating from 1.6% in June. The improved inflation data further solidified market expectations for a September rate hike by the Bank of Japan. Meanwhile, the US Treasury's plan to expand its debt repurchase program to curb rising borrowing costs continued to weigh on the dollar, providing additional support for the yen. The Bank of Japan is expected to maintain its tight monetary policy path, while the US Treasury's repurchase program will put pressure on the dollar; the policy divergence between the two central banks continues to dominate the direction of the USD/JPY exchange rate.

Rabobank: 3-month target of 158.00, with further upside risk in the short term.

Rabobank's foreign exchange team noted that the recent weakening of the US dollar due to Finance Minister Bessenter's repurchase program has helped alleviate immediate pressure on the currency pair, with "USD/JPY having moved away from the psychological level of 160.00." Looking ahead, the bank's forecast is anchored to expectations that the Bank of Japan will accelerate its tightening pace, maintaining its 3-month USD/JPY forecast at 158.00, but also cautioning that "further upward movement in the short term cannot be ruled out." This assessment implies that while the medium-term outlook is downward, short-term volatility risks remain.

Technical Analysis: The 20-day moving average is a key resistance level.

The USD/JPY pair is currently trading around 159.00, with the 20-day moving average (around 159.30) remaining a key short-term resistance level. A decisive break above this level could lead to a move towards the psychological level of 160.00. Support lies in the 158.30 area (near the 200-day moving average); a break below this level could see further declines towards 157.00. The Relative Strength Index (RSI) is in neutral territory, indicating short-term uncertainty. Against the backdrop of strengthening inflation data and continued downward pressure from the dollar repurchase program, the USD/JPY pair is biased towards a medium-term downside, but short-term movements remain influenced by geopolitical factors and fluctuations in US Treasury yields.

Summarize

The USD/JPY pair traded in a narrow range around 159.00. Japan's core CPI rose 1.8% year-on-year in July, reinforcing expectations of an interest rate hike, while the US Treasury's expanded repurchase program continued to weigh on the dollar. Rabobank maintained its 3-month target of 158.00 but warned of the possibility of a further rise to 160.00 in the short term. With policy divergence and geopolitical risks intertwined, the USD/JPY pair is expected to fluctuate between 158.00 and 160.00 in the short term, awaiting further clarity from the Bank of Japan's September meeting and the trend of US Treasury yields. (USD/JPY daily chart, source: EasyForex) At 15:31 Beijing time on August 21, the USD/JPY exchange rate was 158.90/91.