USD/JPY marches towards 144.00 on firmer yields, risk-aversion ahead of Fed Chair Powell’s speech

• USD/JPY picks up bids to refresh intraday high, extends Friday’s recovery.
• Japan’s former FX diplomat rules out plans to defend 145.00 level.
• BOJ’s intervention favored sellers but risk-off mood, hawkish Fed keeps bulls hopeful.
• Second-tier US data, comments from Fed Chair Powell will be important to aim for further upside move.

USD/JPY renews intraday high around 143.60 as Tokyo opens for Monday, extending Friday’s recovery moves. In doing so, the yen pair also reverses the previous day’s pullback from the 24-year high, triggered by Japan’s intervention to defend the national currency.

The yen pair’s latest rebound could be linked to the comments from Japan’s former top currency diplomat Naoyuki Shinohara. “Japan likely won't intervene in the currency market to defend a line-in-the-sand such as 145 yen versus the dollar, and instead limit any further action to smoothing operations aimed at taming volatility,” said Shinohara per Reuters.

It’s worth noting that the USD/JPY price corrected sharply from the highest levels since 1998 on Thursday after the country’s top currency diplomat Masato Kanda confirmed that they have intervened in the FX market. He added that the government “took decisive action in the forex market.”

Even so, strong US PMIs, the escalation in the Russia-Ukraine tension and hawkish central bankers apart from the Bank of Japan (BOJ) keep the USD/JPY buyers hopeful.

As per the latest readings of the US S&P Global PMIs for August, published on Friday, the Manufacturing gauge rose to 51.8 from 51.5, while its services counterpart recovered from 44.6 to 49.3 for September. Following that, Fed Chairman Jerome Powell said on Friday, “We are committed to using our tools.” Following him, Fed Vice Chair Lael Brainard mentioned that inflation is very high and is hitting low-income families ‘hard’. During the weekend, Atlanta Federal Reserve President Raphael Bostic said that he still believes the central bank can tame inflation without substantial job losses given the economy's continued momentum, reported Reuters while quoting the Fed policymaker’s interview on CBS' "Face the Nation".

Elsewhere, Ukraine President Zelenskiy was last heard saying that maybe ''Putin's nuclear threats were a bluff, but now, it could be a reality'' as per a CBS interview. Meanwhile, the United States warned of "catastrophic consequences" if Moscow were to use nuclear weapons in Ukraine after Russia's Foreign Minister said regions holding widely-criticized referendums would get full protection if annexed by Moscow.

Amid the market’s fears, Wall Street closed in the red and the yields favored the US dollar to remain firmer, amid the hawkish Fedspeak and rate hike. That said, the S&P 500 Futures print mild losses while the US 10-year Treasury yields add four basis points to 3.74% at the latest.

Moving on, USD/JPY buyers are likely to keep the reins while closely observing any signals from Japan's intervention and speeches from Fed Chairman Jerome Powell, up for publishing on Tuesday and Wednesday.

Technical analysis

Although the recent higher lows and firmer RSI, not overbought, favor USD/JPY buyers, a daily closing beyond the 13-day-old resistance line, at 144.00 by the press time, becomes necessary for conviction. Alternatively, the 21-DMA level near 142.25 restricts the immediate downside.