USD/JPY hits new year high amid divergence between Fed and BOJ monetary policy

• The USD/JPY pair hits a new year high at 146.68, buoyed by upbeat opening on Wall Street and dovish comments from BOJ Governor Kazuo Ueda.
• Despite the drop in 10-year US Treasury yields, the pair maintains its bullish momentum, reflecting the Fed’s hawkish stance on further tightening.
• A packed economic calendar could introduce volatility, including key indicators from the US and Japan.

The pair USD/JPY resumes its uptrend and marks a new year-to-date high of 146.68, with optimistic sentiment as Wall Street opens the week higher amid tight liquidity conditions due to the UK summer banking holiday United. For its part, the Japanese yen extended its losses to three consecutive sessions, driven by the moderate statements of the Governor of the Bank of Japan, Kazuo Ueda. The pair is trading at 146.60.

Japanese Yen Extends Losses as Wall Street Raises and BOJ’s Ueda Remains Dovish

US stocks resumed their bullish trend following hawkish remarks from US Federal Reserve (Fed) Chairman Jerome Powell in Jackson Hole. Despite being data dependent, Powell’s words reinforced the hawkish stance of US central banks, sending the USD/JPY pair higher. He added that the strong economic expansion and tight job market would justify further tightening by the Fed if those economic indicators show no signs of easing.

The USD/JPY advance stalled as US Treasury yields began to lose ground, particularly the 10-year US Treasury whose coupon fell two basis points to 4.22 % and undermined the dollar.

In Japan, Bank of Japan Governor Kazuo Ueda said core inflation remains below target and justified the Bank of Japan’s current “dovish” stance on monetary policy, despite July core inflation increased by 3.1%. Ueda added that “inflation is expected to decrease.”

Although the Bank of Japan tightened its yield curve control (YCC) to a flexible target of 0.50%-1%, the 10-year Japanese Government Bond (JGB) yield has failed to break higher, could change the bearish bias of the USD/JPY pair. Once the BOJ signals that it is ready to normalize its monetary policy, USD/JPY could turn lower after posting gains of 11.85% on the year.

During the week that begins the economic calendar will be full of publications. In the US, the JOLT report will be released, consumer confidence, the release of Gross Domestic Product, the Fed’s preferred indicator for measuring inflation, core PCE, US jobs data and activity business. On the Japanese front, speeches by two BOJ members.

USD/JPY Price Analysis: Technical Insights

The recovery of the US dollar against the Japanese yen will continue if it were not for the expressions of the Japanese authorities threatening to intervene in the foreign exchange markets. After hitting a fresh year-to-date high, USD/JPY could extend gains towards a Nov 3 high of 148.45, followed by an Oct 31 high of 148.84, before breaking through 149.00. Downside risks for the major pairs emerge at the Tenkan-Sen line at 145.61. If breached, the next stop would be the August 23 low at 144.54.