USD/JPY refreshes YTD peak, lacks follow-through ahead of Fed’s Powell, BoJ’s Ueda

• USD/JPY reverses modest intraday slide and climbs to a fresh YTD peak on Wednesday.
• The Fed-BoJ policy divergence continues to act as a tailwind despite intervention fears.
• Traders look to Fed Chair Powell and BoJ Governor Ueda for some meaningful impetus.

The USD/JPY pair attracts some dip-buying near the 143.75-143.70 area on Tuesday and touches a fresh high since November 2022 during the early European session. Spot prices currently trade around the 144.20-144.25 region, up 0.10% for the day, and seems poised to prolong its recent upward trajectory witnessed over the past three weeks or so.

Despite warnings by Japanese authorities to intervene again to stem losses for the domestic currencies, expectations that the Bank of Japan (BoJ) will sticks to its dovish stance undermine the Japanese Yen (JPY) and lend support to the USD/JPY pair. It is worth recalling that the BoJ Governor Kazuo Ueda recently ruled out the possibility of any imminent change in ultra-loose monetary policy settings and signalled no immediate plans to alter its yield curve control measures.

The marks a big divergence in comparison to a more hawkish stance adopted by other major central banks, including the Federal Reserve (Fed), which indicated that borrowing costs may still need to rise as much as 50 bps by the end of this year. The bets were reaffirmed by stronger-than-expected US macro data released on Tuesday. This, in turn, assists the US Dollar (USD) to gain some positive traction and turns out to be another factor acting as a tailwind for the USD/JPY pair.

Apart from this, the prevalent risk-on mood - as depicted by a further rise in the equity markets - undermines the safe-haven JPY 
and supports prospects for a further near-term aprpecaiting move. Traders, however, prefer to wait on the sidelines ahead of Fed Chair Jerome Powell and BoJ Governor Kazuo Ueda's appearance at the ECB Forum on Central Banking in Sintra. Nevertheless, the aforementioned fundamental backdrop seems tilted firmly in favour of bullish traders.

Hence, any meaningful corrective decline might still be seen as a buying opportunity and is more likely to remain short-lived. Even from a technical perspective, the USD/JPY pair has been trending higher along an upward sloping channel over the past three week or so. This further points to a well-established short-term bullish trend and adds credence to the positive outlook ahead of the release of the US Core PCE Price Index - the Fed's preferred inflation gauge on Friday.

Technical levels to watch