USD/JPY: Potential for Further Gains Amid Dollar-Dominated Trend

■ Amidst a continued decline in crude oil futures prices, the US dollar index remained high, and the USD/JPY exchange rate showed a gradual upward trend.  

■ Market expectations of multiple interest rate hikes by the Bank of Japan this year failed to drive a significant appreciation of the yen. Currently, we are in a window to confirm the resilience of the US economy. 
 
On the 9th, crude oil futures prices (WTI) fell 3.4% from the previous trading day, closing at just over $88 per barrel. The previous day, influenced by news that Iran and Israel had ceased mutual attacks, WTI briefly fell below $86. Subsequently, Iran shot down a US Army helicopter, and President Trump hinted at retaliatory action. WTI rebounded slightly to just over $89 in early Asian trading on the 10th, but since reaching a high of just over $109 on May 18th, it has maintained an overall downward trend. From a technical perspective, its negative deviation from the 20-day moving average (which was $96.06 as of the 9th) has further widened. However, compared to the level before the outbreak of the Middle East conflict (closing price of $67.02 on February 27th), the current price is still significantly high, and inflationary pressures remain persistent. 

 
The U.S. Energy Information Administration (EIA) released its Short-Term Energy Outlook (Monthly Report) on the 9th. The report indicated that global oil inventories are being depleted at a record rate due to supply disruptions caused by the conflict with Iran, and are expected to fall to their lowest levels since at least 2003. Based on the assumption that shipping volumes through the Strait of Hormuz will not recover to pre-conflict levels until early 2027, the report believes that the continued decline in inventories is laying the foundation for a significant rise in crude oil prices in the coming months. Brent crude futures also fell 3.0% that day, closing at just over $91 per barrel, but the EIA expects its average price to reach $105 during June and July. Against this backdrop, the U.S. Dollar Index (DXY), while slightly lower than the previous trading day, remained in its highest range in about two months and continued to trade above its 20-day moving average (99.28 as of the 9th), maintaining an upward trend. 
 
The USD/JPY exchange rate continued its pattern of dollar appreciation and yen depreciation, moving towards the April 30 high of 160.72 yen. The market widely expects the Bank of Japan to raise its policy rate at its monetary policy meeting on the 15th and 16th, with some also suggesting further rate hikes between October and December. However, the yen's appreciation momentum has not strengthened significantly. Demand for the dollar remains strong as the market has already priced in the Federal Reserve's (FRB) expectation of another rate hike as early as September. With inflation data, including the May Consumer Price Index (CPI), to be released tonight, along with other important economic indicators to be released this weekend and next week, the market will enter a phase of reaffirming the resilience of the US economy. Against the backdrop of renewed signs of accelerating inflation, if the dollar continues to dominate market movements, the USD/JPY pair may see further gains in the short term.