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USD/JPY Reaches a New Yearly High Near 147.85, But Intervention Concerns May Limit Gains
During the Asian session, USD/JPY re-establishes its yearly high, despite a paucity of follow-through buying. The USD's strength is bolstered by the fact that it is nearing a six-month high in the face of rising Fed rate hike expectations. As a result of intervention concerns, a softer risk tone benefits the safe-haven JPY and limits any additional gains.
The USD/JPY pair advances during Thursday's Asian session and reaches a new high since November 2022 in the region of 147.80-147.85 in the last hour, despite a paucity of follow-through.
The US Dollar (USD) is hovering near a six-month high reached on Wednesday as a result of positive US macroeconomic data, which is seen as a key factor supporting the USD/JPY pair. In fact, the US ISM Services PMI exceeded even the most optimistic forecasts in August, rising to 54.5, the highest level since February. Additional details of the report showed a rise in new orders and businesses paying higher prices, pointing to a resilient US economy and persistent inflation pressure. This increases the likelihood that the Federal Reserve (Fed) will raise interest rates in November.
The belief that the US central bank will maintain high interest rates for an extended period of time continues to support elevated US Treasury bond yields and functions as a tailwind for the Greenback. The Japanese Yen (JPY), on the other hand, maintains its relative underperformance as a result of the Bank of Japan's (BoJ) dovish stance, which is anticipated to maintain its ultra-loose policy settings. Fears that the Japanese government will intervene in the foreign exchange markets to support the domestic currency prevent traders from placing fresh bullish wagers on the USD/JPY currency pair.
It is worth noting that Japan's chief currency diplomat, Masato Kanda, cautioned against the recent depreciation of the JPY and stated on Wednesday that authorities will not rule out any options if speculative moves on the currency market persist. This, along with a generally weakened tone on equity markets, is believed to be supporting the JPY's safe-haven status and limiting the USD/JPY pair's upside. Added to concerns about a decline in China, worries about economic headwinds resulting from rising borrowing costs dampen investors' appetite for riskier assets.
The aforementioned contradictory fundamental environment necessitates prudence before positioning for a further near-term uptrend, although a meaningful corrective decline remains elusive. In turn, this suggests that the USD/JPY pair is more likely to maintain its subdued/range-bound price action. Traders now await the release of the Weekly Initial Jobless Claims data from the United States later during the early North American session for short-term opportunities. The focus will then transition to the Japanese economic data dump, including the final Q2 GDP print on Friday.
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