USD/JPY climbs to fresh daily high, eyes 130.00 mark amid resurgent USD demand

• USD/JPY regained positive traction on Thursday and recovered a major part of the overnight slide.
• A positive risk tone, the Fed-BoJ policy divergence weighed on the JPY and extended some support.
• The prospects for a further tightening by the Fed and rising US bond yields revived the USD demand.
• The fundamental backdrop favour bullish traders and support prospects for additional intraday gains.

The USD/JPY pair built on its steady intraday ascent and climbed to a fresh daily high, around the 129.75 region during the early European session.

The pair attracted fresh buying on Thursday and has now rallied over 100 pips from the daily low, near the 128.75 zone. The uptick allowed spot prices to reverse a part of the previous day's post-FOMC slide to the weekly low and was sponsored by a combination of factors. A generally positive tone around the European equity markets undermined the safe-haven Japanese yen. This, along with a big divergence in the monetary policy stance adopted by the Fed and the Bank of Japan, extended support to the USD/JPY pair amid resurgent US dollar demand.

Fed Chair Jerome Powell on Wednesday downplayed the possibility of a more aggressive tightening path, though stated that policymakers were ready to approve 50 bps rate hikes at upcoming meetings. Moreover, the markets are still pricing in a further 200 bps rate hike for the rest of 2022 
- 50 bps at each of the next four FOMC policy meetings. This was evident from a fresh leg up in the US Treasury bond yields, which assisted the USD to rebound from the one-week low touched earlier this Thursday and provided a goodish lift to the USD/JPY pair.

In contrast, the Bank of Japan has vowed to keep its existing ultra-loose policy settings and conduct unlimited bond purchase operations to defend its “near-zero” target for 10-year yields. This further contributed to driving flows away from the JPY and acted as a tailwind for the USD/JPY pair. The fundamental backdrop favours bullish traders and suggests that the recent corrective pullback from a two-decade high has run its course. Hence, a subsequent strength, back above the 130.00 psychological mark, remains a distinct possibility.

Market participants now look forward to the US economic docket, featuring the release of the usual Weekly Initial Jobless Claims later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the USD/JPY pair. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities.

Technical levels to watch