USD/JPY is approaching its weekly low again, trading above 145.00 ahead of US PMI.

• USD/JPY extends the previous day’s losses and continues to fall for the second day in a row.
• Intervention fears and looming recession risks drive the safe-haven yen, putting pressure on the pair.
• The political divergence between the BoJ and the Fed limits losses in a bullish context of the USD and awaiting the US PMIs.

The USD/JPY pair remains under some selling pressure for the second day in a row on Wednesday and falls to the bottom of its weekly range during the European session. The pair is currently hovering around the 145.35-143.30 zone, down almost 0.40% on the day, although the fundamental background warrants some caution before positioning for a significant drop.

Speculation that the Japanese authorities will intervene in the currency markets to prop up the national currency continues to act as a headwind for the USD/JPY pair. Apart from this, concerns about a deeper global economic recession are driving some safe-haven flows into the Japanese Yen (JPY) and also contributing to the sell tone surrounding the pair. Against the backdrop of worsening economic conditions in China, disappointing releases of preliminary PMI data from the Eurozone and the UK fuel recession fears and boost demand for traditional safe-haven assets such as the JPY.

That being said, a more dovish stance from the Bank of Japan (BoJ) could limit gains for the Yen and help limit the USD/JPY’s decline, at least for now. It is worth remembering that the BoJ is the only major central bank in the world that maintains negative interest rates. Furthermore, policy makers have stressed that a sustainable rate hike is a prerequisite for considering dismantling the massive monetary stimulus. This marks a large divergence from other major central banks, including the Federal Reserve (Fed), which is expected to hold rates higher for longer.

In fact, markets are still pricing in the possibility of a further 25 basis point Fed rate hike later this year. This, along with the appearance of strong selling around European currencies, lifts the US dollar (USD) to its highest level in more than two months. Aside from this, a generally positive tone around equity markets and signs of easing of US-China trade tensions support the prospects for some lower-level buying around USD/JPY. .

Traders, for their part, may refrain from entering aggressive positions and would rather wait for the Jackson Hole Symposium, where Fed Chairman Jerome Powell’s comments will be scrutinized for clues on the future path of rate hikes. This, in turn, will boost demand for the US dollar and give the USD/JPY pair further directional momentum. Meanwhile, the US preliminary PMI indices will be released early in the American session on Wednesday.

USD/JPY technical levels to watch