USD/JPY eases from 24-year peak, still up over 1% for the day amid sustained USD buying

• USD/JPY caught aggressive bids and surged past the 139.00 mark, to a fresh 24-year high.
• Rising bets for a supersized Fed rate hike in July boosted the USD and remained supportive.
• The prevalent risk-off mood offered some support to the safe-haven JPY and capped gains.

The USD/JPY pair stalled its strong intraday positive move near the 139.35-139.40 region and retreated a few pips from a new 24-year high touched earlier this Thursday. The pair was last seen trading just below the 139.00 mark, still up over 1% for the day.

The US dollar resumed its relentless rise and climbed to a fresh two-decade high, which, in turn, was seen as a key factor that provided a strong boost to the USD/JPY pair. The red-hot US consumer inflation figures released on Wednesday reaffirmed bets that the Fed would stick to its faster policy tightening path. In fact, the markets have now started pricing in the possibility of a supersized, historic 100 bps rate hike move on July 27.

Hawkish Fed expectations kept the US Treasury bond yields elevated and continued acting as a tailwind for the greenback. In contrast, the Bank of Japan has promised to conduct unlimited bond purchase operations to defend its near-zero target for 10-year yields. This has resulted in a further widening of the US-Japan yield differential, which continued weighing on the Japanese yen and lifted the USD/JPY pair beyond the 139.00 mark.

That said, an extended selloff in the equity markets offered some support to the safe-haven JPY and held back bulls from placing fresh bets around the USD/JPY pair. This, in turn, was seen as the only factor that led to an intraday pullback of over 50 pips amid slightly overbought RSI (14) on the daily chart. The downside, however, remains cushioned amid a big divergence in the monetary policy stance adopted by the Fed (hawkish) and the BoJ (dovish).

Market participants now look forward to the US US economic docket - featuring the release of the Producer Price Index and the usual Weekly Initial Jobless Claims. This, along with the US bond yields, will influence the USD price dynamics later during the early North American session. Apart from this, the broader market risk sentiment will drive demand for the safe-haven JPY and produce short-term trading opportunities around the USD/JPY pair.

Technical levels to watch