- USD/JPY is struggling to gain traction on Friday and remains stuck in a range.
- Government intervention in the forex market supports the JPY and limits the rise of the pair.
- Rising US bond yields and the monetary policy divergence between the Fed and the BoJ continue to offer support.
The pair USD/JPY It struggles to take advantage of the previous day’s late bounce from two-week lows and ranges in the first half of Friday. The pair is currently in neutral territory, around the area of 142.25 and is influenced by a combination of divergent factors.
The Japanese yen continues to receive support from the fact that the authorities intervened in the market for the first time since 1998 to stop the rapid decline of the national currency. Also, prevailing risk aversion amid rising recession fears is propping up the yen as a safe haven and acting as a headwind for the USD/JPY pair. That said, the strength of the US dollar helps limit the decline, at least for now.
Indeed, the dollar index, which measures the greenback against a basket of currencies, remains near 20-year highs amid the aggressive stance taken by the Federal Reserve. It is worth remembering that the US central bank signaled on Wednesday that it will likely carry out more aggressive rate hikes to limit inflation. This continues to favor a further rise in US Treasury yields and continues to support the dollar.
Secondly, The Bank of Japan (BoJ) aggressively defended its yield curve ceiling and reaffirmed its commitment to ultra-low interest rates on Thursday. This translates into a widening of the rate differential between the US and Japan and supports the prospects of new buying around the USD/JPY pair. It is worth mentioning that the policy divergence between the Fed and the BoJ has been a key factor in the yen’s decline of more than 25% against the dollar since the beginning of 2022.
However, the fundamental background suggests that the path of least resistance for the USD/JPY pair is to the upside. Market Participants are now awaiting the release of preliminary US PMI data for further momentum. This, along with US bond yields and Fed Chairman Jerome Powell’s speech, will weigh on the dollar. Apart from this, the broader risk sentiment could help produce short-term opportunities on the last day of the week.
USD/JPY technical levels
Source: Fx Street
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