USD/JPY forecast: Currency Pair of the Week | July 6, 2026

US investors will be back from a long weekend break today. We have some important economic data to look forward to this week following that disappointing jobs report on Thursday, which triggered a bit of dollar selling. But the greenback has started this week on the front foot again, with the USD/JPY surging back above 162.00 on disappointment there was no signs of intervention on Friday as some, including us, had expected. Japan refused to take advantage of quieter market conditions and a weaker dollar to step in with some dollar selling action. Consequently, it is back to square one for USD/JPY forecast: Unless intervention arrives, the current macro backdrop continues to favour more upside in the pair.

 

Dollar regains momentum again

 

On Thursday of last week, we saw a sizeable dollar drop, thanks largely to the disappointing US jobs report and profit-taking ahead of the long weekend. But the greenback was on the ascendency again at the time of writing. By lunchtime London trade, the USD/JPY was up nearly 100 pips and was the standout riser across the majors. Some of that move had more to do with the yen weakening across the board, no doubt.

 

But going back to the dollar, and while the weaker jobs report did disappoint expectations last week, it still fell short of signalling a decisive shift in the long-dollar narrative. The Fed’s policy outlook still favours a rate hike later this year, although much will depend on the direction of inflation than anything else. With oil prices weakening sharply in recent weeks, there is hope that inflation will ease accordingly. But there are no guarantees and markets will remain data-dependant.

 

The NFP report makes it difficult to justify expectations of multiple Fed tightening later this year. However, it is equally difficult to argue that it is weak enough to encourage aggressive pricing of rate cuts. Markets have trimmed some of their hawkish expectations as you’d expect and this is already reflected in the dollar falling across the board last week. But there is still room for investors to maintain a cautious stance ahead of the next US inflation report.

 

ISM Services PMI and Fed minutes among week’s macro highlights

 

Attention now turns to another busy week for US economic data and central bank communication. For today, the focus will be on the ISM services PMI data, which is expected to print 54.2 vs. 54.5. The PMI data will provide an important update on the health of the US economy and could influence expectations for future Federal Reserve policy. With Chair Kevin Warsh continuing to emphasise a data-dependent approach, each major economic release has become increasingly significant for financial markets. The data will need to deviate noticeably from expectations to trigger a dollar move.

 

Later in the week, the publication of the June FOMC meeting minutes will offer investors a closer look at policymakers’ thinking. Markets will be particularly interested in whether Warsh’s relatively hawkish tone from that meeting reflects a broader consensus within the committee, or whether there are also signs of concern over economic momentum.

 

Unless the minutes reveal a more dovish shift than markets currently expect, interest rate expectations are unlikely to change materially, which should therefore keep the USD/JPY forecast tilted to the upside.

 

Japan refused to intervene but could still do so any moment

 

Much of the attention post-NFP was on Japan. Speculation that officials may be stepping into the market caused the USD/JPY to dip briefly below 160.50 on Friday as traders probably thought that a weaker US dollar may help amplify their efforts in a holiday thinned session. Historically, Japanese policymakers have often preferred periods of thinner global liquidity when carrying out currency operations, as smaller transactions can generate a greater market impact. However, that wasn’t to be and so traders have quickly reversed their short USD/JPY positions by the looks of things today.

 

Even if Japan intervenes this week by selling its dollar reserves, intervention alone is unlikely to deliver lasting yen strength – as we have repeatedly seen in the past. Without a more convincing shift in the Bank of Japan’s policy stance, namely through aggressive hikes and stronger guidance on future interest rate increases, history suggests any gains in the yen could prove temporary. The experience following the intervention episodes earlier this year serves as a reminder that official action can slow the move but rarely changes the longer-term direction without support from monetary policy. Given this backdrop, the USD/JPY forecast remains titled to the upside.

 

Technical USD/JPY forecast: technical analysis

 

The USD/JPY was able to regain its poise as Friday’s session wore on, resulting in the formation of a hammer candle right at the 160.50-160.75 key support area. With rates now breaking above the next resistance in the 161.50 zone, we have seen a sharp short squeeze rally today to near 162.50 area.  

 

 

Short-term support is now located between 161.50 and 161.95 on the USD/JPY chart. This zone had previously acted as resistance. The 161.95 level also marks the July 2024 high, so the pair’s ability to hold above it could prove significant. Watch for some profit-taking around the next round handles such as 163.00, 164.00 and 165.00. Things will turn bearish if in the coming days the 161.50 level gives way.

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R