USD/JPY prints fresh YTD peak around 147.85, intervention fears might cap gains

• USD/JPY refreshes YTD peak during the Asian session, albeit lacks follow-through buying.
• The USD stands tall near a six-month top amid more Fed rate hike bets and lends support.
• Intervention fears, a softer risk tone benefits the safe-haven JPY and caps any further gains.

The USD/JPY pair edges higher during the Asian session on Thursday and touches a fresh high since November 2022, around the 147.80-147.85 region in the last hour, albeit lacks follow-through.

The US Dollar (USD) stands tall near a six-month peak touched on Wednesday in the aftermath of the upbeat US macro data, which, in turn, is seen as a key factor acting as a tailwind for the USD/JPY pair. In fact, the US ISM Services PMI surpassed even the most optimistic estimates and rose to 54.5 in August, or the highest since February. Additional details of the report showed a rise in new orders and businesses paying higher prices, pointing to a resilient US economy and persistent inflation pressure. This increases the odds of an interest rate hike by the Federal Reserve (Fed) in November.

The view that the US central bank will keep rates elevated for longer remains supportive of elevated US Treasury bond yields and acts as a tailwind for the Greenback. The Japanese Yen (JPY), on the other hand, continues with its relative underperformance in the wake of a dovish stance adopted by the Bank of Japan (BoJ), which is expected to stick to its ultra-loose policy settings. That said, fears that Japanese authorities will intervene in the foreign exchange markets to prop up the domestic currency hold back traders from placing fresh bullish bets around the USD/JPY pair.

It is worth recalling that Japan's top currency diplomat Masato Kanda warned against the recent sell-off in the JPY and said on Wednesday that authorities won't rule out any options if speculative moves in the currency market persist. This, along with a generally weaker tone around the equity markets, is seen underpinning the JPY's safe-haven status and contributing to capping the upside for the USD/JPY pair. Worries about economic headwinds stemming from rising borrowing costs come on top of concerns about a slowdown in China and temper investors' appetite for riskier assets.

The aforementioned mixed fundamental backdrop warrants some caution before positioning for a further near-term appreciating move, though any meaningful corrective decline still seems elusive. This, in turn, suggests that the USD/JPY pair is more likely to extend its subdued/range-bound price action. Traders now look to the release of the Weekly Initial Jobless Claims data from the US for short-term opportunities later during the early North American session. The focus will then shift to the Japanese economic data dump, including the final Q2 GDP print on Friday.

Technical levels to watch