The USD/JPY Exchange Rate Approaches The Year-To-Date High, But Remains Below The 145.00 Level Due To Intervention Concerns
USD/JPY reaches a new multi-week high on Friday, despite a lack of purchasing momentum. The policy divergence between the BoJ and the Fed continues to operate as a tailwind and remains supportive. A weaker USD limits the upside amidst the danger of Japanese government intervention.

During the Asian session, the USD/JPY pair adds to its weekly gains and consistently climbs to the 145.00 psychological level, moving closer to the yearly high reached in June. The uptick lacks bullish conviction, however, as traders remain on alert in anticipation of Japanese authorities' jawboning/intervention.
The Japanese Yen (JPY) continues its relative underperformance as a result of the Bank of Japan's (BoJ) more dovish posture. The BoJ is the only central bank in the world with a negative benchmark interest rate. Even the recent July move to make the Yield Curve Control (YCC) policy more flexible and permit the yield on the 10-year Japanese government bond to rise towards 1 percent has failed to support the local currency. In actuality, policymakers have emphasised that the policy adjustment was a technical modification intended to extend the effectiveness of stimulus.
In addition, this week's publication of weaker Japanese wage data reaffirmed market expectations that the BoJ will maintain ultra-low interest rates for the remainder of the year. This is a significant divergence relative to expectations for a substantially more hawkish Federal Reserve (Fed), and it provides support for the USD/JPY pair. Despite weaker-than-anticipated US consumer inflation figures released on Thursday, the markets continue to price in the possibility of one more 25 bps Fed rate hike in 2023. In fact, the headline US CPI rose from 3% to 3.2% YoY in July, which was less than expected by the consensus.
In addition, the Core CPI inflation, which excludes volatile food and energy prices, dipped to 4.7% from 4.8% in June, indicating that some measures of fundamental price pressures moderated substantially last month. However, inflation remains well above the Fed's 2% target, which supports the likelihood of further policy tightening. Consequently, the US-Japan rate differential will widen, favouring USD/JPY investors. However, a modest decline in the US Dollar (USD) functions as a headwind for the major currency.
Despite this, spot prices remain poised for robust weekly gains, and the aforementioned fundamental environment suggests that the path of least resistance lies to the upside. Consequently, any corrective pullback may continue to be viewed as a purchasing opportunity and is likely to be limited. The US economic agenda features the issuance of the Producer Price Index (PPI) as well as the Preliminary Michigan Consumer Sentiment and Inflation Expectations reports. The data could impact the USD and provide support for the USD/JPY pair.
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