- USD/JPY continues its recent strong bullish momentum and hits a new 24-year high.
- The policy divergence between the Fed and the Bank of Japan and the widening of the US-Japan rate spread are weighing heavily on the yen.
- The appearance of new purchases of dollars provides an additional boost and contributes to the rally.
On Tuesday, the pair USD/JPY receives aggressive offers and rises to levels just above 142.00, reaching a new 24-year high during the middle of the European session.
The Japanese yen continues its relative underperformance amid bets that the Bank of Japan’s ultra-loose monetary policy will continue. On the contrary, the Federal Reserve is expected to maintain its aggressive policy to control inflation. This marks a major divergence in the monetary policy stance adopted by the two major central banks and helps the USD/JPY pair to extend an almost month-long bullish trajectory.
Recent comments from several Federal Reserve officials reinforced market expectations of a 75 basis point rate hike at the September FOMC meeting. This continues to support elevated US Treasury yields, widening the US-Japan rate spread. Aside from this, risk-on momentum – as evidenced by the positive tone surrounding equity markets – undermines the safe haven of the yen and contributes to the strong positive move in the USD/JPY pair.
The momentum is also supported by the appearance of fresh buying around the US dollar, which is back near two-decade highs amid dovish expectations from the Fed. In addition, a sustained move above previous highs in the year and subsequent strength beyond 141.00 appear to have fueled some technical buying around the USD/JPY pair. That said, the slightly overbought RSI (14) on the daily chart warrants some caution for aggressive bullish traders.
However, the fundamental context suggests that the path of least resistance for the USD/JPY pair is to the upside and any significant pullback could be viewed as a buying opportunity.
Technical levels
Source: Fx Street
With 6 years of experience, I bring to the table captivating and informative writing in the world news category. My expertise covers a range of industries, including tourism, technology, forex and stocks. From brief social media posts to in-depth articles, I am dedicated to creating compelling content for various platforms.
