USD/JPY hits fresh YTD peak, climbs further beyond 138.00 on broad-based USD strength

• USD/JPY turns positive for the sixth straight day and refreshes the YTD top on Thursday.
• The prevalent bullish sentiment surrounding the USD remains supportive of the move.
• The Fed-BoJ policy divergence and a breakout through 138.00 favour bullish traders.

The USD/JPY pair attracts fresh buying following an intraday dip to the 137.30-137.25 region on Thursday and turns positive for the sixth successive day. Spot prices build on the previous day's breakout momentum beyond a technically significant 200-day Simple Moving Average (SMA) and climb to a fresh YTD peak, around the 138.25 region during the early North American session.

The US Dollar (USD) buying remains unabated amid the latest optimism over the potential lifting of the potential lifting of the US debt ceiling, which, in turn, is seen as a key factor acting as a tailwind for the USD/JPY pair. In fact, US President Joe Biden and top U.S. congressional Republican Kevin McCarthy underscored their determination to reach an agreement soon to raise the federal government’s $31.4 trillion debt ceiling.

This helps calm fears of an unprecedented American debt default, which boosts investors' confidence and dents demand for safe-haven assets, including the Japanese Yen (JPY). Apart from this, expectations that the Federal Reserve will keep interest rates higher for longer, remain supportive of elevated US Treasury bond yields. The aforementioned fundamental factors continue to underpin the buck and push the USD/JPY pair higher.

The USD sticks to its intraday gains following the release of better-than-expected US macro data, showing that the Initial Jobless Claims fell to 242K last week and the Philly Fed Manufacturing Index improved to -10.4 in May from -31.3 previous. The JPY, on the other hand, is further weighed down by a dovish stance adopted by the Bank of Japan (BoJ) and a deceleration in Japan's export growth to its weakest pace in more than two years in April.

This, in turn, suggests that the path of least resistance for the USD/JPY pair is to the upside. Even from a technical perspective, a sustained move beyond the 138.00 round-figure mark could be seen as a fresh trigger for bullish traders and supports prospects for a further near-term appreciating move. Hence, some follow-through strength towards the next relevant hurdle, near the 138.70-138.75 region, looks like a distinct possibility.

Technical levels to watch