- USD/JPY meets fresh sales and pulls back sharply from the 145.00 area.
- The words of the Japanese authorities point to an imminent intervention and boost the yen.
- The appearance of some selling around the USD also contributes to the intraday decline of the pair.
The pair USD/JPY faces rejection near the psychological level of 145.00 and pulls back from near the 24-year highs tested earlier on Wednesday. The downward movement extends throughout the first half of the European session, although the pair manages to bounce a few pips from the daily low of 142.90 and is currently just above the 143.00 level.
A combination of factors fails to help the USD/JPY pair capitalize on the previous day’s 300+ pip rally following US CPI. Japanese Yen strengthens across the board amid policy from Japanese officials and of the chances of the Bank of Japan (BoJ) intervening to stop the free fall of the national currency. This, along with the appearance of some selling around the US dollar, puts downward pressure on the pair.
Having said that, a recovery in global risk sentiment, as the generally positive tone around equity markets shows, could cap the safe-haven yen’s gains. Apart of this, the wide divergence in the monetary policy stance adopted by the Japanese central bank and the Federal Reserve supports the prospects of some buying around the USD/JPY pair. The BoJ remains committed to continuing its monetary easing.
Instead, the US central bank is expected to continue raising interest rates at a faster pace to control inflation. These expectations were confirmed by the US CPI report, which was stronger on Tuesday. The markets quickly began to value the possibility of a 1% rate hike at the next FOMC meeting on September 20-21. This is evident from the further rise in US Treasury yields, which favors the dollar bulls and should support the USD/JPY pair.
Nevertheless, the fundamental background continues to lean strongly in favor of the bulls. Therefore, any subsequent decline could still be seen as a buying opportunity and remain limited. Market participants are now awaiting the release of the US Producer Price Index (PPI), due at the start of the American session. Also, US bond yields and broader risk sentiment should boost the USD/JPY pair.
USD/JPY technical levels
Source: Fx Street
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