- USD/JPY meets with a fresh supply and retreats sharply from the 145.00 neighbourhood.
- Jawboning by Japanese authorities points to an imminent intervention and boosts the JPY.
- The emergence of some selling around the USD also contributes to the intraday downfall.
The USD/JPY pair faces rejection near the 145.00 psychological mark and retreats from the vicinity of a 24-year high retested earlier this Wednesday. The downward trajectory extends through the first half of the European session, though the pair manages to rebound a few pips from the daily low and is currently placed just above the 143.00 mark.
A combination of factors fails to assist the USD/JPY pair to capitalize on the previous day's post-US CPI surge of over 300 pips. The Japanese yen strengthens across the board amid jawboning by Japanese officials and chances that the Bank of Japan (BoJ) may step in to arrest a freefall in the domestic currency. This, along with the emergence of some US dollar selling, exerts downward pressure on the major.
That said, a recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets - could cap gains for the safe-haven JPY. Apart from this, a big divergence in the monetary policy stance adopted by the Japanese central bank and the Federal Reserve supports prospects for the emergence of some dip-buying around the USD/JPY pair. The BoJ remains committed to continuing with its monetary easing.
In contrast, the US central bank is expected to keep raising interest rates at a faster pace to tame inflation. The bets were reaffirmed by the stronger US CPI report on Tuesday. The markets quickly started pricing in the possibility of a full 1% rate hike at the next FOMC meeting on September 20-21. This is evident from a fresh leg up in the US Treasury bond yields, which favours the USD bulls and should lend support to the USD/JPY pair.
Nevertheless, the fundamental backdrop remains tilted firmly in favour of bullish traders. Hence, any subsequent decline could still be seen as a buying opportunity and remain limited. Market participants now look forward to the US Producer Price Index (PPI), due for release later during the early North American session. Apart from this, the US bond yields and the broader risk sentiment should provide some impetus to the USD/JPY pair.
Technical levels to watch
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