- USD/JPY oscillates in a narrow band around mid-145.00s on Wednesday.
- The Fed-BoJ policy divergence continues to act as a tailwind for the pair.
- Intervention fears cap any meaningful upside ahead of the FOMC minutes.
The USD/JPY pair holds steady around mid-145.00s during the Asian session on Wednesday and remains well within the striking distance of its highest level since November 2022 touched the previous day.
The US Dollar (USD) consolidates its recent strong gains to over a two-month top and continues to draw support from expectations that the Federal Reserve (Fed) will keep interest rates higher for longer. The bets were lifted by the stronger US data released on Tuesday, which showed that Retails Sales grew 0.7% on a monthly basis in July as compared to the previous month's upwardly revised reading of 0.3% and the 0.4% rise anticipated.
Furthermore, sales excluding autos increased by a robust 1%, again beating market estimates and recording the best monthly gains since January. This indicated that consumer spending held up well in July and pointed to an extremely resilient US economy, which should allow the Fed to stick to its hawkish stance. This, in turn, is seen underpinning the Greenback and acting as a tailwind for the USD/JPY pair, though the upside remains capped.
A 20 points slump in Empire State Manufacturing to a reading of -19 in August reinforced speculations that the Fed will pause its rate-hiking cycle at the next policy meeting in September. This, in turn, holds back the USD bulls from placing aggressive bets. Apart from this, fears of a possible intervention by Japanese authorities to curb any further fall in the domestic currency contribute to keeping a lid on the USD/JPY pair, at least for the time being.
That said, a more dovish stance adopted by the Bank of Japan (BoJ), which is the only major central bank in the world to maintain a negative benchmark interest rate, should cap any meaningful gains for the Japanese Yen (JPY). Adding to this, the recent widening of the US-Japan rate differential, led by bets for one more 25 bps Fed rate hike by the end of this year, supports prospects for a further near-term appreciating move for the USD/JPY pair.
Market participants now look to the US economic docket, featuring the release of Building Permits, Housing Starts and Industrial Production figures. This might influence the USD price dynamics and provide some impetus to the USD/JPY pair. The focus, however, will remain glued to the FOMC meeting minutes, which will play a key role in driving the USD demand in the near term and help determine the next leg of a directional move for the major.
Technical levels to watch
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.