USD/JPY hits fresh high since August 1998, climbs further beyond mid-144.00s

• USD/JPY gains strong follow-through traction on Wednesday and spikes to a fresh 24-year peak.
• The Fed-BoJ policy divergences continue to weigh heavily on the JPY and remain supportive.
• Retreating US bond yields hold back the USD bulls from placing fresh bets and might cap gains.

The USD/JPY pair builds on the previous day's blowout rally and gains strong follow-through traction on Wednesday. The pair hits a fresh 24-year peak during the first half of the European session and is currently placed just above mid-144.00s.

The dramatic freefall in the Japanese yen remains a key theme in the markets amid a big divergence in the monetary policy stance adopted by the Bank of Japan and other major central banks. It is worth mentioning that the BoJ has been lagging in the process of policy normalisation and remains committed to continuing with its monetary easing. This, along with a modest bounce in the equity markets, weighs heavily on the safe-haven JPY and continues to push the USD/JPY pair higher.

Bullish traders further took cues from the fact that the BoJ said it would buy ¥550 billion of bonds at its regular operations, up from ¥500 billion scheduled, to keep the benchmark 10-year yield below the 0.25% upper limit. The intraday buying, meanwhile, remains unabated despite the latest verbal warning by officials against a sharp fall of the yen. In fact, Chief Cabinet Secretary Hirokazu Matsuno told reporters that he is concerned about rapid, one-sided moves in the currency market recently and added that the government would like to take necessary steps if such movements continue.

Apart from this, the underlying strong bullish sentiment surrounding the US dollar lifts the USD/JPY pair to its highest level since August 1998. Firming expectations that the Fed will stick to its aggressive policy tightening path allow the greenback to stand tall near a two-decade high. In fact, the markets are pricing in a supersized 75 bps rate hike at the September FOMC meeting and the bets were reaffirmed by Tuesday's upbeat US ISM Services PMI. That said, a modest pullback in the US Treasury bond yields might keep a lid on any further gains for the greenback and the USD/JPY pair.

There isn't any major market-moving economic data due for release from the US on Wednesday. Hence, the focus will be on speeches by Fed officials, due 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. Apart from this, traders might take cues from the broader risk sentiment to grab short-term opportunities. Nevertheless, the fundamental backdrop supports prospects for further gains.

Technical levels to watch