USD/JPY rises on strong US Dollar, elevated US yields

• USD/JPY ascends to mid-148s, propelled by Powell’s comments and rising US Treasury yields.
• Powell hints at three rate cuts this year, bolstering the Dollar, despite ruling out a March cut.
• January’s ISM Services PMI rise indicates stronger US Non-Manufacturing activity, boosting economic optimism.
• US 10-year Treasury yield climbs to 4.16%, with the Dollar Index up 0.52%, reflecting the dollar’s dominance.
• Japanese earnings and spending data, alongside Fed officials’ remarks, awaited for more market insights.

The USD/JPY gained modestly late in the New York session, trading at around the 148.70s area, sponsored by the strong US Dollar and higher US Treasury bond yields. Over the weekend, comments by the US Federal Reserve (Fed) Chair Jerome Powell spurred flows toward the Greenback while US Treasury yields skyrocketed.

Comments from Fed Chair Powell and strong services PMI, fuels USD/JPY rally

Fed Chair Jerome Powell said that most policymakers expect three rate cuts in the year, and added that “nothing has happened in the meantime that would lead me to think that people would dramatically change their forecasts.” He pushed back against a March rate cut, adding that if inflation continues to edge lower, the US Central Bank could reduce rates faster.

Aside from this, the Institute for Supply Management (ISM) revealed that Non-Manufacturing activity, also known as Services PMI, picked up in January, increasing from 50.5 In December to 53.4 last month.

The USD/JPY edged higher as the US 10-year Treasury note yield is soaring close to 14 basis points (bps), at 4.16%. At the same time, the US Dollar Index (DXY), an index that tracks the buck’s performance against the other six currencies, advanced 0.52%, up at 104.50.

The Japanese economic calendar will be light, featuring Average Cash Earnings on a yearly basis, along with -Household Spending numbers, expected to improve, following November data. On the US front, the calendar will feature Fed speakers led by Cleveland Fed President Loretta Mester, Minnesota’s Fed President Neil Kashkari, and Susan Collins from the Boston Fed.

USD/JPY Price Analysis: Technical outlook

A bullish engulfing pattern formed above the crossover of the Senkou Span A and B, opened the door for further gains, but USD/JPY buyers need to reclaim 149.00, which could open the door to challenge the 150.00 figure. On the flip side, if sellers step in, they need to drag the exchange rate below 148.00 to test the Tenkan-Sen at 147.39.