USD/JPY sits near 32-year peak, around 149.00 mark as traders await fresh catalyst

• USD/JPY hits a fresh 32-year high on Tuesday, though lacks any follow-through buying.
• Speculations that Japanese authorities will intervene act as a headwind for the major.
• The Fed-BoJ policy divergence, the risk-on mood weighs on the JPY and offers support.

The USD/JPY pair reverses a knee-jerk intraday fall to the 148.00 neighbourhood and climbs back closer to a 32-year peak touched earlier this Tuesday. The pair is currently placed around the 149.00 mark, though lacks bullish conviction as traders await a fresh catalyst before positioning for any further appreciating move.

Japan's Finance Minister Shunichi Suzuki warns again on Tuesday that the government will take decisive action against excessive, speculator-driven currency moves. This turns out to be a key factor holding back bulls from placing aggressive bets around the USD/JPY pair and acting as a headwind for spot prices. The downside, however, remains cushioned amid a big divergence in the monetary policy stance adopted by the Bank of Japan and the Federal Reserve.

In fact, the BoJ remains committed to continuing with its monetary easing and so far, has shown no inclination to hike interest rates from ultra-low levels. The dovish bias was reaffirmed by Governor Haruhiko Kuroda's comments last Friday, saying that raising interest rates now was inappropriate in light of the country's economic and price conditions. Furthermore, reports that a fresh stimulus in Japan could have a target of ¥30 trillion weigh on the JPY.

The US central bank, on the other hand, is expected to stick to its rate-hiking cycle to curb inflation. The bets were reaffirmed by hotter US consumer inflation figures released last week and the recent hawkish remarks by several Fed officials. The current market pricing indicates a nearly 100% chance of another supersized 75 bps Fed rate hike move in November. This, in turn, remains supportive of elevated US Treasury bond yields and acts as a tailwind for the US dollar.

In fact, the yield on the benchmark 10-year US government bond holds steady near the 4.0% threshold, widening the US-Japan rate differential. Apart from this, a strong recovery in the global risk sentiment continues to undermine the safe-haven JPY and supports prospects for an extension of the well-established bullish trend. That said, extremely overbought conditions might hold back traders from placing aggressive bets around the USD/JPY pair.

Technical levels to watch