BUZZ-COMMENT-USD/JPY squeeze higher faces first key test

Aug 30 (Reuters) - USD/JPY is closing out the week on the front foot amid a squeeze higher in both the dollar and U.S. yields, but the rally still appears corrective, especially with surprisingly strong Tokyo CPI providing a reminder that the Bank of Japan is looking to tighten monetary policy.

With Tokyo core inflation at 2.4% versus 2.2% expected, BoJ tightening may be underpriced 0#BOJWATCH, while markets are still trying to figure out whether the Fed will cut by 25 or 50bp month.

Still, USD/JPY has poked back above 146.00, topside hurdles at 146.50 – the Powell pivot – and 148.

Traders are likely to take chips off the table ahead of a U.S. data deluge week, with topside surprises to carry the dollar higher. Otherwise, a return to 144.00 may follow.

The bottom line for pair is that the move from 160 to 141 was historically sharp, particularly within the short space of time of four weeks. Therefore, while 150 may be more likely to hit before 140, the preference is likely to lean in favor of fading rallies, unless there is a significant repricing in U.S. rates.

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(Justin McQueen is a Reuters market analyst. The views expressed are his own.)

((justin.mcqueen@thomsonreuters.com))