USD/JPY sticks to gains above 135.00 post-US Retail Sales, focus remains on FOMC minutes

• USD/JPY gains strong follow-through traction for the second successive day on Wednesday.
• Hawkish Fed expectations, rising US bond yields underpin the USD and remain supportive.
• The markets react little to the US Retail Sales figures as the focus remains on FOMC minutes.

The USD/JPY pair prolongs its one-week-old ascending trend and gains traction for the second straight day on Wednesday. The pair maintains its strong bid tone through the early North American session and is currently placed just below mid-135.00s, or over a one-week high.

The US dollar regains positive traction and inches back closer to the monthly peak touched the previous day, which turns out to be a key factor acting as a tailwind for the USD/JPY pair higher. The recent hawkish remarks by several Fed officials fueled speculations that the Fed would stick to its policy tightening path. This, along with a fresh leg up in the US Treasury bond yields, continues to underpin the buck.

The USD holds steady after the US Census Bureau reported that the US Retail Sales remained flat MoM in July, missing estimates for a modest 0.1% increase. The slight disappointment, however, was largely offset by unexpected growth in sales excluding autos, which rose 0.4% during the reported month. Adding to this, Control Group sales climbed 0.8% during the reported month against market expectations for a 0.6% rise.

The data reaffirms hawkish Fed expectations and remains supportive of elevated US bond yields, widening the US-Japan rate differential. This, in turn, weighs on the Japanese yen and pushes the USD/JPY pair higher. That said, the risk-off impulse, as depicted by a generally weaker tone around the equity markets, seems to offer some support to the JPY and might keep a lid on any meaningful upside for the pair, at least for now.

Traders might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the FOMC meeting minutes, due later during the US session. Investors will look for clues about the possibility of a larger 75 bps Fed rate hike move in September, which would play a key role in influencing the near-term USD price dynamics. This, in turn, should help determine the next leg of a directional move for the USD/JPY pair.

Technical levels to watch