USD/JPY Outlook: Bulls likely to challenge JPY intervention level, around 150.00

The USD/JPY pair trades with a mild positive bias for the fourth straight day and hovers around its highest level since October 2022, above the 149.00 mark during the early European session on Wednesday. The Japanese Yen (JPY) continues to be weighed down by the Bank of Japan's (BoJ) decision last week to maintain the status quo. This, along with the prevalent bullish sentiment surrounding the US Dollar (USD), acts as a tailwind for the major.

The Japanese central bank left its ultra-easy policy settings unchanged at the end of the September meeting and refrained from offering any hint about potential alterations in the dovish stance in the foreseeable future. Adding to this, the BoJ Governor  Kazuo Ueda said earlier this week that the current policy framework has a big stimulative effect on the economy and the basic stance is to patiently maintain monetary easing. Ueda added that Japan's economy is at a critical stage on whether it can achieve a positive wage-inflation cycle and stable, sustainable achievement of 2% inflation is not yet in sight. This, in turn, dismisses hopes for a future exit from the massive stimulus program and continues to undermine the JPY.

In contrast, the Federal Reserve (Fed) signalled that interest rates are not dropping anytime soon and left the door open for at least one more lift-off by the end of this year. Adding to this, officials projected only two rate cuts in 2024 as compared to four estimated three months ago. Furthermore, a slew of FOMC members noted that they remain uncertain if the inflation battle is finished, supporting prospects for further policy tightening. This led to a selloff in the US fixed-income market and pushed the benchmark 10-year Treasury yield to its highest level since 2007. This, in turn, has been a key factor behind the USD's recent ascent to a 10-month peak and continues to lend support to the USD/JPY pair.

That said, the prevalent risk-off environment is benefitting the JPY's relative safe-haven status and capping the upside for spot prices. Apart from this, speculations that Japanese authorities will intervene in the foreign exchange market to support the domestic currency further hold back bulls from placing fresh bets around the USD/JPY pair. In fact, Japan’s Finance Minister Shunichi Suzuki issued a fresh warning against the recent JPY weakness and said last week that the government will not rule out any options in addressing excess volatility in currency markets. This, in turn, warrants some caution before positioning for an extension of a well-established uptrend witnessed since mid-July.

Market participants now look forward to the US economic docket, featuring the release of Durable Goods Orders later during the early North American session. This, along with the US bond yields, might influence the USD price dynamics. Apart from this, the broader risk sentiment might contribute to providing some impetus to the USD/JPY pair. The attention will then turn to the final US Q2 GDP print and Fed Chair Jerome Powell's speech on Thursday. The focus, however, will remain on the US Core PCE Price Index - the Fed's preferred inflation gauge – on Friday, which could impact the US central bank's policy outlook and determine the near-term trajectory for the major.

Technical Outlook

From a technical perspective, this week's sustained strength beyond the previous YTD peak, around the 148.45 region, was seen as a fresh trigger for bullish traders. Moreover, oscillators on the daily chart are holding in the positive territory and are still far from being in the overbought zone. This, in turn, suggests the path of least resistance for the USD/JPY pair and supports prospects for additional gains. Any meaningful upside, however, is likely to confront stiff resistance and remain capped near the 150.00 psychological mark, or the intervention level. The said handle should act as a pivotal point, which if cleared decisively will set the stage for a further near-term appreciating move.

On the flip side, any corrective pullback might now be seen as a buying opportunity near the 148.50-148.45 zone. This should help limit the downside near the 148.00 strong horizontal resistance breakpoint, now turned support. A convincing break below the latter might prompt some technical selling and drag the USD/JPY pair further towards the next relevant support near the 147.40-147.30 region. The downward trajectory could get extended further towards the 147.00 round figure before spot prices eventually drop to 146.55-146.50 support.