USD/JPY holds steady around mid-145.00s, bulls retain control near YTD peak

The USD/JPY pair oscillates in a narrow band around mid-145.00s during the Asian session on Tuesday and consolidates its recent gains to a fresh high since November 2022. The overnight breakout through the 145.00 psychological mark, meanwhile, favours bullish traders and supports prospects for an extension of over a one-week-old strong uptrend.

The US Dollar (USD) holds steady just below a two-month peak touched the previous day and turns out to be a key factor acting as a tailwind for the USD/JPY pair. Growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer, along with concerns about the health of the global economy, particularly China, continue to benefit the Greenback's status as a global reserve currency. That said, a combination of factors lends some support to the Japanese Yen (JPY) and keeps a lid on any further gains for the major, at least for the time being.

Investors seem convinced that the US central bank will stick to its hawkish stance and have been pricing in the possibility of one more 25 bps lift-off by the end of this year. The bets were lifted by the incoming US macro data, which suggested that the battle to bring inflation back to the Fed's 2% target is far from being won. In fact, the latest US CPI report released last week showed a moderate rise in consumer prices in July. Adding to this, the US PPI climbed slightly more than expected and supported prospects for further policy tightening by the Fed.

In contrast, the Bank of Japan (BoJ) has stuck to its ultra-loose monetary policy and is the only major central bank in the world to maintain a negative benchmark interest rate. This, along with the recent widening of the US-Japan rate differential, might continue to undermine the JPY and favours the USD/JPY bulls. That said, speculations for a possible intervention by Japanese authorities to curb any further fall in the domestic currency hold back bulls from placing aggressive bets. Apart from this, the upbeat Japanese GDP report contributes to capping the pair.

In fact, the preliminary government data showed that the Japanese economy expanded by 1.5% during the April-June period and the annualized growth stood at 6.0% as compared to the 3.1% anticipated and 2.7% in the previous quarter. This marks the third straight quarter of expansion. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the USD/JPY pair is to the upside. Traders now look to the US macro data - monthly Retail Sales and the Empire State Manufacturing Index - for a fresh impetus.

Technical levels to watch