USD/JPY consolidates around mid-146.00s, bulls have the upper hand near YTD peak

• USD/JPY holds steady just below its highest level since November 2022 touched on Friday.
• The divergence Fed-BoJ policy outlook continues to lend some support and favours bulls.
• Intervention fears turn out to be the only factor acting as a headwind and capping the upside.

The USD/JPY pair kicks off the new week on a subdued note and oscillates in a narrow trading band around mid-146.00s through the Asian session, just below its highest level since November 2022 touched on Friday.

The US Dollar (USD) consolidates its recent strong gains to a nearly three-month high and remains supported by Federal Reserve (Fed) Chair Jerome Powell’s hawkish remarks, which, in turn, is seen acting as a tailwind for the USD/JPY pair. In a keynote address at the Jackson Hole Symposium, Powell said that the US central bank may need to raise interest rates further to cool still-too-high inflation and added that policymakers would proceed carefully as they decide whether to tighten further or to hold the policy rate constant. The comments cemented market expectations for one more 25 bps lift-off by the end of this year and remain supportive of elevated US Treasury bond yields, underpinning the Greenback.

In contrast, the Bank of Japan (BoJ) Governor Kazuo Ueda said that the underlying inflation in Japan remains a bit below the 2% target and the central bank will stick to current ultra-easy monetary policy settings. Ueda added that inflation is expected to decline from here. This comes after data released on Friday showed that consumer prices in Tokyo – Japan’s capital city – grew at a slower-than-expected pace in August and ensured that the BoJ may keep the status quo until next summer. The divergence Fed-BoJ policy outlook turns out to be another factor lending support to the USD/JPY pair, though intervention fears hold back bullish traders from placing fresh bets and capping the upside, at least for now.

Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for spot prices is to the upside. Hence, any meaningful corrective decline might still be seen as a buying opportunity and is more likely to remain cushioned. Moving ahead, there isn’t any relevant market-moving economic data due for release from the US on Monday, leaving the USD at the mercy of the US bond yields. This, in turn, might provide some impetus to the USD/JPY pair ahead of this week’s important US macro data scheduled at the beginning of a new month, including the closely-watched monthly employment details – popularly known as the NFP report on Friday.

Technical levels to watch