USD/JPY stands tall near its highest level since August 1998, awaits FOMC minutes

• USD/JPY gains some follow-through traction on Wednesday and hits a fresh 24-year high.
• The Fed-BoJ policy divergence, dismal domestic data weigh on the JPY and extend support.
• Bulls turn cautious amid fears of intervention and ahead of the key FOMC meeting minutes.

The USD/JPY pair builds on its steady uptrend witnessed over the past week or so and climbs to a fresh 24-year high on Wednesday. The pair maintains its bid tone through the first half of the European session and holds comfortably above the 146.00 round-figure mark.

The Japanese yen takes a fresh hit following the release of the downbeat domestic data, showing that machinery orders fell more than expected in August. This, along with a big divergence in the monetary policy stance adopted by the Bank of Japan (dovish) and other major central banks (hawkish), continues to push the USD/JPY pair higher for the sixth successive day.

In fact, the BoJ, so far, has shown no intent to hike interest rates and lags in the process of policy normalisation. Adding to this, Japan's Prime Minister Fumio Kishida said on Tuesday that the BoJ needs to stick to its ultra-lose policy setting until wages rise. In contrast, the Fed is expected to stick to its faster rate hiking cycle to combat stubbornly high inflation.

The recent hawkish comments by several Fed officials, along with Friday's robust US jobs report, lifted bets for another supersized 75 bps rate increase by the US central bank in November. This remains supportive of elevated US Treasury bond yields, widening the US-Japan rate differential and supporting prospects for an extension of the well-established bullish trend.

That said, speculations for more currency market intervention by Japanese authorities hold back traders from placing fresh bullish bets around the USD/JPY pair. Japan's Finance Minister Shunichi Suzuki reiterated earlier this week that the government stands ready to intervene and respond appropriately to excess FX moves. This, in turn, is capping the upside for spot prices.

Traders also seem reluctant and prefer to move to the sidelines the FOMC meeting minutes, due for release later during the US session on Wednesday. The minutes will be closely scrutinized for clues about the Fed's rate hike path, which will play a key role in influencing the USD price dynamics and provide some impetus to the USD/JPY pair ahead of the US CPI report on Thursday.

Technical levels to watch