USD/JPY approaches 144.00 on firmer rates and risk aversion preceding Fed Chair Powell's speech

As Tokyo starts on Monday, the USD/JPY reaches a fresh intraday high above 143.60, extending Friday's recovery gains. In doing so, the yen pair reverses the previous day's retreat from the 24-year high, which was precipitated by Japan's intervention to safeguard the national currency.

Naoyuki Shinohara, Japan's former top currency ambassador, may have contributed to the yen pair's recent appreciation. "Japan is unlikely to engage in the currency market to defend a line in the sand such as 145 yen against the dollar," Shinohara told Reuters, and will instead focus on smoothing operations aimed at reducing volatility.

Notable is that the USD/JPY exchange rate reversed quickly from its highest levels since 1998 on Thursday, after Japan's senior currency ambassador Masato Kanda admitted that they had intervened in the FX market. The government, he claimed, "took decisive action on the foreign exchange market."

Nonetheless, optimistic USD/JPY buyers are supported by robust US PMIs, the escalation of Russia-Ukraine tensions, and hawkish central bankers other than the Bank of Japan (BOJ).

According to the most recent US S&P Global PMIs for August, which were released on Friday, the Manufacturing index jumped to 51.8 from 51.5, while the Services index improved from 44.6 to 49.0 for September. Fed Chairman Jerome Powell then stated on Friday, "We are committed to utilize our tools." Following him, Fed Vice Chair Lael Brainard stated that 'hard' inflation is impacting low-income people. Raphael Bostic, president of the Atlanta Federal Reserve, told CBS' "Face the Nation" over the weekend that he still believes the central bank can reduce inflation without substantial job losses, given the economy's sustained pace, as reported by Reuters, citing the Fed official's interview.

According to a CBS interview, Ukraine President Zelenskiy was last heard stating that "Putin's nuclear threats may have been a bluff, but now it may be a reality" The United States, meanwhile, warned of "catastrophic repercussions" if Moscow used nuclear weapons in Ukraine, after Russia's foreign minister stated that territories hosting heavily condemned referendums would receive full security if annexed by Moscow.

Wall Street closed in the negative due to market worries, as yields favored the US currency to continue strong despite hawkish Fedspeak and a rate hike. In spite of this, S&P 500 Futures see modest losses while 10-year US Treasury yields rise four basis points to 3.74 percent.

Moving forward, USD/JPY buyers are anticipated to maintain control while closely monitoring any indications from Japan's involvement and remarks by Fed Chairman Jerome Powell, which are scheduled to be released on Tuesday and Wednesday.

Although the recent higher lows and firmer RSI, which is not overbought, support USD/JPY buyers, conviction requires a daily closing above the 13-day-old resistance line, now at 144.00 as of press time. Alternatively, the 21-day moving average level near 142.25 limits the downside potential.