- USD/JPY is seen consolidating its recent gains to the highest level since October 2022.
- The July BoJ policy meeting minutes fail to provide any meaningful impetus to the pair.
- The Fed’s hawkish outlook continues to underpin the USD and lend some support.
- Intervention fears turn out to be the only factor keeping a lid on any further upside.
The USD/JPY pair struggles to gain any meaningful traction on Wednesday and oscillates in a narrow trading band through the Asian session. Spot prices currently hover around the 149.00 mark, just below the highest level since October 2022 touched on Tuesday and move little in reaction to the Bank of Japan (BoJ) policy meeting minutes.
Policymakers agreed that the BoJ must maintain current monetary easing to stably, and sustainably hit the price target, while several members noted the downside risks to Japan's economy, prices were big mainly regarding the impact of overseas developments. This comes on top of BoJ Governor Kazuo Ueda's remarks earlier this week, reaffirming that the central bank is more likely to stick to its ultra-loose monetary policy stance in the near future. In contrast, the Federal Reserve (Fed) signalled the possibility of at least one more rate hike by the end of this year, which allows the US Dollar (USD) to stand tall near the YTD peak and acts as a tailwind for the USD/JPY pair.
In fact, the US central bank last week reiterated that interest rates will remain higher for longer in the wake of sticky inflation in the US. Furthermore, investors are now getting increasingly wary about the potential inflationary impact of rising Oil prices. Adding to this, the incoming resilient US macro data supports prospects for further policy tightening by the Fed. The hawkish outlook, meanwhile, remains supportive of elevated US Treasury bond yields, which continue to underpin the Greenback and the USD/JPY pair. However, speculations that Japanese authorities will intervene in the foreign exchange market to support the domestic currency cap the upside.
Traders also seem reluctant to place aggressive bets and prefer to wait for Fed Chair Jerome Powell's speech on Thursday. Apart from this, investors, this week will confront the release of important US macro data, including Durable Goods Orders later this Wednesday, the final Q2 GDP print on Thursday and the Core PCE Price Index on Friday. This, in turn, will play a key role in influencing the USD price dynamics and provide some meaningful impetus to the USD/JPY pair. The aforementioned fundamental backdrop, meanwhile, seems tilted firmly in favour of bullish traders and suggests that the path of least resistance for spot prices remains to the upside.
Technical levels to watch
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