USD/JPY hits fresh 24-year peak, eyes 147.00 mark ahead of FOMC minutes

• USD/JPY gains strong traction on Wednesday and rallies to its highest level since August 1998.
• The Fed-BoJ policy divergence weighs heavily on the JPY and remains supportive of the move.
• Overbought oscillators on the daily chart could cap gains ahead of the FOMC meeting minutes.

The USD/JPY pair scales higher through the early North American session on Wednesday and hits a new 24-year peak, around the 146.85 region in the last hour.

A combination of factors continues to weigh on the Japanese yen and act as a tailwind for spot prices amid the underlying bullish sentiment surrounding the US dollar. The Bank of Japan (BoJ), so far, has shown no inclination to hike interest rates, marking a big divergence in comparison to a more hawkish stance adopted by other major central banks. Apart from this, Wednesday's domestic data, showing that machinery orders fell more than expected in August, is seen undermining the JPY.

The US dollar, on the other hand, remains well supported by the prospects for a more aggressive policy tightening by the Fed and provides an additional lift to the USD/JPY pair. In fact, the markets have been pricing in another supersized 75 bps Fed rate hike move in November. The bets were reaffirmed by the release of the US Producer Price Index, which came in stronger-than-estimated and might have lifted expectations from the US consumer inflation figures, due on Thursday.

The latest leg up could further be attributed to some technical buying above the Asian session swing high, around the 146.35-146.40 region. That said, speculations for more currency market intervention by Japanese authorities might hold back bullish traders from placing fresh bets amid overbought oscillators on the daily chart. BoJ Governor Haruhiko Kuroda said that the government intervention last month to stop one-sided depreciating moves in JPY was quite appropriate.

Furthermore, investors might also prefer to move to the sidelines and wait for a fresh catalyst from the FOMC meeting minutes, due later during the US session. The focus will then shift to the latest US CPI report on Thursday, which is anticipated to remain stubbornly high and reinforce the Fed's hawkish rhetoric. This, in turn, suggests that the path of least resistance for the USD/JPY pair is to the upside and corrective pullbacks could still be seen as a buying opportunity.

Technical levels to watch