USD/JPY holds above 160 as yield gap supports drift towards 160.75, UOB says

SD/JPY stayed above 160.00 and finished slightly firmer, closing around 160.29–160.25 after an early New York dip to 159.82 and a push up to 160.34. The pair had traded between 159.70 and 160.07 the previous Thursday, and UOB’s 24-hour view had been for a 159.65–160.15 range. The latest move left it up 0.17%, with near-term momentum pointing to an extension towards 160.50, while 160.75 remains the major resistance and is not expected to be tested immediately. Support is seen at 160.05, and a break below 159.95 would indicate fading upward pressure.

Over a 1–3 week horizon, UOB previously framed the market as range-bound between 159.20 and 160.30, with the 04 June spot level cited at 159.90. Friday’s break above 160.30 and the 160.34 high has shifted the tone to a tentative rebuild in upward momentum, with scope for a gradual rise towards 160.75 so long as support at 159.60 holds.

Upward Bias and Market Drivers
We see the USD/JPY pair maintaining a gentle upward bias in the coming weeks. The pair is currently holding above the important 160.00 mark, suggesting a potential, gradual climb towards 160.75. This view is supported by the wide interest rate differential between the U.S. Federal Reserve, holding rates firm around 5.3%, and the Bank of Japan, with rates near zero.

Given the mild momentum, we think traders could consider buying call options with strike prices near 160.50, expiring in two to three weeks. This strategy allows for profiting from the expected upward drift without the full risk of an outright long position. The latest U.S. Non-Farm Payrolls data showed a stronger-than-expected labor market, which reinforces dollar strength and makes a sudden reversal less likely.