USD/JPY eases from 24-year peak, still well bid around 139.35-139.40 area

• USD/JPY climbs to a fresh 24-year high on Thursday amid the Fed-BoJ policy divergence.
• The widening of the US-JPY yields differential weighs on the JPY and remains supportive.
• Speculations about an intervention by authorities hold back bulls from placing fresh bets.

The USD/JPY pair trims a part of its intraday gains to a fresh 24-year high touched this Thursday and retreats to the 139.35-139.40 area during the early European session. The pair, however, manages to hold in the positive territory, up over 0.30% for the day and seems poised to prolong its recent bullish trajectory.

Firming expectations that the Fed will stick to a more aggressive policy tightening path continue to push the US Treasury bond yields higher. This results in a further widening of the US-Japan rate differential, which is seen weighing on the Japanese yen amid the Bank of Japan’s reluctance to tighten monetary policy.

The markets have been pricing in the possibility of a supersized 75 bps Fed rate hike move at the September policy meeting. The bets were reaffirmed by the recent hawkish remarks by several Fed officials. This, in turn, pushes the yield on the rate-sensitive 2-year US government bond to a 15-year high on Thursday

This marks a big divergence in comparison to a more dovish stance adopted by the Japanese central bank. In fact, the BoJ has repeatedly said that it will stick to its easing policy stance until wages and prices rise in a stable and sustainable manner. This, in turn, supports prospects for further gains for the USD/JPY pair.

That said, speculations that authorities could interfere and take more concrete action, to stall the recent decline in the JPY, capped the upside. Investors also seem reluctant and prefer to wait for the US monthly jobs report (NFP) on Friday. Nevertheless, the fundamental backdrop seems tilted firmly in favour of bulls.

Market participants now look forward to the US economic docket, featuring Weekly Initial Jobless Claims and the ISM Manufacturing PMI. This, along with the US bond yields, will influence the USD and provide a fresh impetus to the USD/JPY pair. Apart from this, the broader risk sentiment should allow traders to grab short-term opportunities.

Technical levels to watch