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USD/JPY Consolidates Near The Mid-145.00s, Just Below Tuesday's Yearly High
On Wednesday, USD/JPY fluctuates in a narrow band near mid-145.00s. The Fed-BoJ policy divergence continues to provide the pair with a tailwind. Prior to the FOMC minutes, any meaningful upside is capped by intervention concerns.
During Wednesday's Asian session, the USD/JPY pair maintains steady in the mid-145 range and remains within striking distance of its highest level since November 2022, which was reached the previous day.
The US Dollar (USD) continues to be buoyed by expectations that the Federal Reserve (Fed) will maintain higher interest rates for an extended period of time, consolidating its recent gains to a two-month high. The stronger US data released on Tuesday indicated that Retails Sales increased 0.7% on a monthly basis in July, compared to the previous month's upwardly revised reading of 0.3% and the expected 0.4% increase.
In addition, sales excluding automobiles increased by a robust 1 percent, again exceeding market expectations and marking the strongest monthly growth since January. This indicated that consumer spending held up well in July and pointed to a very resilient US economy, allowing the Fed to maintain its hawkish stance. This, in turn, is expected to support the U.S. dollar and act as a tailwind for the USD/JPY pair, although the upside remains limited.
A 20-point decline in the Empire State Manufacturing Index to -19 in August bolstered rumours that the Fed will halt its rate-hiking cycle at its September meeting. In turn, this discourages USD investors from placing aggressive wagers. Aside from this, fears of a potential intervention by Japanese authorities to prevent a further depreciation of the domestic currency are currently maintaining a lid on the USD/JPY pair.
Nevertheless, a more dovish stance adopted by the Bank of Japan (BoJ), the only major central bank in the world to sustain a negative benchmark interest rate, should limit any significant gains for the Japanese Yen (JPY). In addition, the recent widening of the US-Japan rate differential, driven by expectations for one more 25 bps Fed rate hike by the end of the year, bolsters the likelihood of a further near-term USD/JPY appreciation.
Now, market participants await the release of Building Permits, Housing Starts, and Industrial Production data from the United States. This could affect the USD's price dynamics and give the USD/JPY pair a boost. The FOMC meeting minutes will play a key role in propelling USD demand in the near term and determining the next leg of directional movement for the major currency.
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