- USD/JPY is back above 137.00 during the early North American session.
- The renewal of dollar purchases and the further rise in US bond yields remain supportive of the upside move.
- Recession fears could offer support to the safe-haven yen and sustain gains.
The USD/JPY pair attracts some buying on the dips near the 136.20-136.15 area on Wednesday and rises to a fresh daily high during the early North American session. However, it seems that it has a hard time taking advantage of the move beyond 137.00.
The US dollar regains positive traction and is back close to the two-decade highs reached the previous day. This turns out to be a key factor lending some support to the USD/JPY pair. The dollar was supported by overnight comments from Minneapolis Fed President Neel Kashkari, which reignited bets of a further tightening of US central bank policy.
Dollar bulls were also supported by US Durable Goods Orders, which were mostly positive. In fact, the US Census Bureau reported that core orders were flat month-on-month in July, versus an expected 0.6% increase. The disappointment, however, was offset by an upward revision to the previous month’s reading and slightly better-than-expected growth in orders excluding transport items.
However, the data confirms expectations that the Fed will raise interest rates further, and current market prices suggest that the odds of a 50 basis point or 75 basis point hike in September are equal. This marks a major divergence from the more dovish monetary policy stance taken by the BoJ, which continues to put some pressure on the Japanese yen.
Meanwhile, hawkish Fed expectations lift US Treasury yields to a near two-month high, widening the US-Japan rate spread and weighing further on the yen However, the prevailing caution in the markets, amid growing concerns about a global economic downturn, offers some support to the safe-haven JPY and could cap USD/JPY’s upside.
However, the fundamental background remains strongly in favor of bullish traders and supports the prospects for a further near-term appreciation move. That said, market participants might refrain from making aggressive bets and would rather wait for a more aggressive message from Fed Chairman Jerome Powell at the Jackson Hole symposium on Friday.
Technical levels to watch
Source: Fx Street
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