USD/JPY clings to intraday gains around mid-150.00s ahead of Fed’s Powell

USD/JPY gains strong positive traction on Wednesday, though the upside potential seems limited.
Less dovish Fed expectations push the US bond yields higher and undermine the lower-yielding JPY.
December BoJ rate hike bets and subdued USD demand might cap the pair ahead of Fed’s Powell.

Haresh Menghani FXStreet

The USD/JPY pair builds on the overnight bounce from the 148.65 area, or its lowest level since October 11 and gains strong follow-through traction on Wednesday. The intraday ascent extends through the first half of the European session and lifts spot prices to a fresh daily high, around the 150.55 region in the last hour.

Investors now seem convinced that the Federal Reserve (Fed) will adopt a more cautious approach to cutting rates amid hopes that US President-elect Donald Trump's policies will boost inflation. This, in turn, pushes the US Treasury bond yields higher and is seen as a key factor driving flows away from the lower-yielding Japanese Yen (JPY). Meanwhile, expectations for a less dovish Fed act as a tailwind for the US Dollar (USD) and provide an additional boost to the USD/JPY pair.

The USD bulls, however, seem reluctant to place aggressive bets and opt to wait for Fed Chair Jerome Powell's speech for more cues about the future rate-cut path. Moreover, the Tokyo November Consumer Price Index (CPI) print released last week indicated that the underlying inflation is gaining momentum and fueled speculations that the Bank of Japan (BoJ) will hike interest rates again in December. This might contribute to keeping a lid on any further gains for the USD/JPY pair.

Traders now look forward to the release of the US ADP report on private-sector employment for some impetus ahead of the US ISM Services PMI. The focus, however, will remain on the official monthly employment details or the Nonfarm Payrolls (NFP) report on Friday, which should guide Fed policymakers on their next decision. This, in turn, will drive the USD demand and determine the near-term trajectory for the USD/JPY pair ahead of the FOMC/BoJ event risks in two weeks.

Economic Indicator

Fed's Chair Powell speech

Jerome H. Powell took office as a member of the Board of Governors of the Federal Reserve System on May 25, 2012, to fill an unexpired term. On November 2, 2017, President Donald Trump nominated Powell to serve as the next Chairman of the Federal Reserve. Powell assumed office as Chair on February 5, 2018.

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