USD/JPY marches towards 139.00 as Fed vs. BOJ divergence propel yields, US NFP eyed

• USD/JPY refreshes five-week high as rush to risk safety propels US dollar, yields.
• Fed’s Powell appears sturdy on his way to rate hikes, BOJ’s Kuroda repeats his love for easy money policies.
• Fears of recession escalate amid doubts about central bankers’ capacity to tame inflation.
• The light calendar emphasizes risk catalysts for fresh impulse.

USD/JPY takes the bids to renew the monthly high around 138.60 during Monday’s Asian session. In doing so, the yen pair takes clues from the firmer Treasury yields, as well as the monetary policy divergence between the US Federal Reserve (Fed) and the Bank of Japan (BOJ), to keep buyers directed towards the yearly high marked in July.

That said, after Fed Chairman Jerome Powell said, “Restoring price stability will take some time, require using central bank's tools 'forcefully',” during his much-awaited Jackson Hole speech. The policymaker also stated that restoring price stability will likely require maintaining a restrictive policy stance for 'some time'. On the other hand, BOJ Governor Haruhiko Kuroda mentioned that the central bank will likely continue with its accommodative policy in Japan, per Reuters.

With this in mind, Reuters reported that the dollar index scaled to a fresh two-decade peak of 109.4 in early Asia trade, with greenback strength pushing other major currencies to new lows and putting pressure on its emerging markets counterparts.

It should be noted that the Bank of Japan said it offered to buy Japanese Government Bonds (JGBs) outright at fixed-rate with residual maturities of more than 5 years and up to 10 years from August 30, report Reuters.

Other than the central bankers’ moves, fears emanating from the US-China tension and chatters that the rate hikes aren’t enough to avoid recession also propel the USD/JPY prices of late.

US Senator Elizabeth Warren said on Sunday, per Reuters, that she was very worried that the Federal Reserve was going to tip the US economy into recession. On the same line was a study presented at the Jackson Hole Symposium stating that the central banks will fail to control inflation and could even push price growth higher unless governments start playing their part with more prudent budget policies. "If the monetary tightening is not supported by the expectation of appropriate fiscal adjustments, the deterioration of fiscal imbalances leads to even higher inflationary pressure," said Francesco Bianchi of Johns Hopkins University and Leonardo Melosi of the Chicago Fed.

Amid these plays, stock futures drop nearly 1.0% while tracing Wall Street’s losses whereas the US 10-year Treasury yields rise seven basis points (bps) to 3.106% at the latest.

Looking forward, Fedspeak and the US PMIs may entertain USD/JPY watchers before Friday’s US jobs report for August. Should the employment numbers arrive as firmer, the greenback gauge could extend the latest run-up towards refreshing the multi-year high.

Technical analysis

A clear upside break of the three-week-old resistance line near 138.65 appears necessary for the USD/JPY bulls to approach the yearly high near 139.40. Meanwhile, the late July high near 137.45 and a 12-day-old support line, close to 136.50, restrict the short-term downside of the yen pair.