USD/JPY extends recovery above 154.50 amid firmer US Dollar

The USD/JPY pair trades in positive territory for the third consecutive day around 154.75 during the early Asian session on Wednesday. The higher-for-longer US rate narrative continues to support the US Dollar (USD) and lift the pair. Nonetheless, further steps from Japanese authorities to prevent the Japanese Yen's current weakness might cap the pair’s upside in the near term. 

The recent hawkish remarks from Minneapolis Fed President Neel Kashkari have boosted the Greenback. Kashkari said on Tuesday that the Fed might stand put on interest rates and open the door to raising the federal funds rate if inflation doesn’t ease. The US Federal Reserve (Fed) committee decided last week to hold its benchmark rate steady in a range of 5.25%–5.50%. The Fed funds rate has been in this range since July 2023. The Fed policymakers emphasized that more clarity would be needed in the inflation outlook before lowering its borrowing costs.

The Bank of Japan (BoJ) hiked interest rates in March for the first time in 17 years, but it remains behind its global rivals, especially the Fed. The interest rate differential between Japan and the US has exerted some selling pressure and made the JPY less appealing. 

The BoJ Governor Kazuo Ueda noted on Tuesday that he will closely monitor the Yen's weakness, and the Japanese central bank will consider taking a policy step if the yen's further slide against the US Dollar (USD). The further possible FX intervention by Japanese authorities is likely to cap the JPY downside for the time being.