Factors Driving the Rise of the USD/JPY

■ Since July, the USD/JPY pair has been fluctuating within the 160.50-162.80 range, maintaining a consolidation trend ahead of major central bank meetings.  

■ From a technical perspective, the USD/JPY is forming a bullish triangle pattern, and an upward breakout is expected in the near future. 
 
After rising to 162.83 on July 1st, the USD/JPY pair fell back to 160.51 on July 3rd. The trigger was the significantly lower-than-expected US non-farm payroll data for June, which cooled market expectations for an earlier rate hike by the Federal Reserve (FRB), weakening the dollar. On the other hand, on July 10th, Japanese Finance Minister Katayama stated that he would promote increased investment in domestic financial assets by the pension fund and hinted at respect for the Bank of Japan's independence. However, the yen's appreciation was only temporary, and the USD/JPY pair rebounded quickly after hitting a low of 161.26. Nevertheless, the exchange rate has generally remained within a narrow range of 161.60-162.80 this week. 
 
The US dollar index (DXY) peaked at 101.80 on June 24 and retreated, falling below its 20-day moving average of 101.06 for the first time in about two months, indicating further signs of dollar weakness. The European Central Bank (ECB) policy meeting will be held on June 23, followed by the US Federal Open Market Committee (FOMC) meeting on June 28-29, and the Bank of Japan's monetary policy meeting on June 30-31. Currently, the short-term financial markets have largely priced in the expectation of further interest rate hikes by the ECB at its September meeting. The market is focused on whether the narrowing interest rate differential between the Eurozone and the US will drive the euro stronger and the dollar weaker; therefore, the ECB statement and President Lagarde's press conference will be the focus. On the other hand, the Bank of Japan stated that it will proceed with policy as appropriate to avoid lagging behind the times. However, the current policy rate is still below the lower bound of the Bank of Japan's estimated neutral interest rate. As long as the real interest rate remains in negative territory, the market expects the yen to remain generally weak, and the USD/JPY exchange rate is also expected to maintain its upward trend. 
 
The renewed escalation of the US-Iran military conflict has pushed WTI crude oil futures prices above $80 per barrel. If oil prices rise further, it is expected to support the US dollar and put pressure on the euro. Against this backdrop, whether the US dollar index can regain its 20-day moving average of 101.06 and restore its strength, thereby further driving the USD/JPY exchange rate higher, will depend on the policy decisions of major central banks in the next two weeks. From a technical chart perspective, the USD/JPY pair is currently forming a bullish triangle pattern with relatively flat highs and rising lows, and is expected to challenge and break through the one-day high of 162.83 in the near future.