- USD/JPY gains strength on Wednesday and recovers to its highest level since August 1998.
- The policy divergence between the Fed and the BOJ weighs heavily on the JPY and remains a support for the move.
- Overbought oscillators on the daily chart could limit gains ahead of the FOMC meeting minutes.
The pair USD/JPY rises during the early North American session on Wednesday and reaches a new 24-year high, around the 146.85 area in the last hour.
A combination of factors continue to weigh on the Japanese Yen and act as a tailwind for the pair amid bullish sentiment surrounding the US Dollar. The Bank of Japan has so far shown no inclination to raise interest rates, which is a big departure from the more aggressive stance taken by other major central banks. Aside from this, Wednesday’s national data showing machine orders fell more than expected in August is seen as undermining the yen.
On the other hand, the US dollar remains well supported by the prospects for more aggressive Fed policy tightening and provides an additional boost to the USD/JPY pair. Indeed, markets have been pricing in another 75 basis point Fed rate hike in November. Bets were firmed up with the release of the US Producer Price Index, which was stronger than estimated and could have raised expectations for the US consumer inflation numbers due to be released on Thursday. .
The last stretch could be attributed to some technical buying above the Asian session high around the 146.35-146.40 area. However, speculations of further intervention in the FX market by the Japanese authorities could deter bulls from placing further bets amid overbought oscillators on the daily chart. BOJ Governor Haruhiko Kuroda said the government’s intervention last month to stop unilateral moves to depreciate the yen was very appropriate.
Furthermore, investors may prefer to stay on the sidelines and wait for a further catalyst in the FOMC Meeting Minutes, due later in the US session. Attention will then turn to the latest US CPI report on Thursday, which is anticipated to remain stubbornly high and reinforce the Fed’s aggressive line rhetoric. This, in turn, suggests that the path of less resistance for the USD/JPY pair is on the upside and corrective pullbacks could still be seen as a buying opportunity.
Technical levels to watch
Source: Fx Street
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