- During the Asian session, the USD/JPY renewed its year-to-date high, albeit without any more purchasing.
- In the midst of additional Fed rate hike wagers, the USD supports and stands erect near a six-month high.
- Putting aside concerns about intervention, a milder risk tone supports the safe-haven JPY and limits further advances.
Although there was little follow-through, the USD/JPY pair moved higher during the Asian session on Thursday and reached a new high since November 2022 in the last hour, mostly in the 147.80–147.85 range.
The positive US macro data released on Wednesday has caused the US Dollar (USD) to rise sharply, approaching a six-month high. This is considered a major tailwind for the USD/JPY pair. The US ISM Services PMI actually exceeded even the most optimistic projections, hitting a record high of 54.5 in August—its highest level since February. The report’s other details indicated an increase in new orders and companies paying higher prices, which suggested that the US economy was still strong and that inflation pressure was still present. This raises the likelihood that the Federal Reserve (Fed) will raise interest rates in November.
The belief that the US Federal Reserve will maintain high-interest rates for an extended period of time sustains high US Treasury bond yields and benefits the US currency. The Bank of Japan (BoJ), which is anticipated to maintain its extremely loose policy settings, took a dovish attitude, which has resulted in the Japanese Yen’s (JPY) continued relative underperformance. Having said that, traders are reluctant to make new, positive wagers on the USD/JPY pair due to concerns that Japanese authorities may interfere in the foreign exchange markets to support the national currency.
It is important to remember that Masato Kanda, Japan’s top currency diplomat, issued a warning against the current JPY sell-off and stated on Wednesday that if speculative swings in the currency market continue, authorities won’t rule out any measures. This is thought to support the JPY’s reputation as a safe haven and help limit the upside for the USD/JPY pair, combined with an overall downturn in the tone of the equities markets. Aside from worries about a slowdown in China, investors’ demand for riskier assets is also tempered by worries about economic headwinds brought on by rising borrowing prices.
Although any significant corrective decline still seems illusive, the previously indicated mixed fundamental background calls for some prudence before preparing for a further near-term appreciating advance. Thus, it would seem more likely that the USD/JPY pair will continue its muted, range-bound price movement. Traders are now waiting for short-term chances later in the early North American session when the US Weekly Initial Jobless Claims data is released. After that, attention will turn to the deluge of Japanese economic data, which will include Friday’s final Q2 GDP reading.
