USD/JPY Price Analysis: Consolidates near YTD peak, seems poised to appreciate further

• USD/JPY remains confined in a range just below a fresh YTD peak touched this Tuesday.
• The fundamental/technical backdrop favours bulls and supports prospects for further gains.
• Any meaningful slide is likely to get bought into and remain limited near the 200-day SMA.

The USD/JPY pair consolidates its recent strong gains to the 139.00 neighbourhood, or a fresh YTD peak touched this Tuesday and seesaws between tepid gains/minor losses through the early North American session. The pair is currently placed just below mid-138.00s, down less than 0.15% for the day, though any meaningful retracement slide still seems elusive.

A combination of supporting factors pushes the US Dollar (USD) to a fresh two-months, which, in turn, is seen acting as a tailwind for the USD/JPY pair. The overnight hawkish remarks by a slew of Federal Reserve (Fed) officials reaffirmed expectations that the US central bank will keep interest rates higher for longer. This, along with hopes that US politicians can come together on a debt ceiling deal, remains supportive of elevated US Treasury bond yields and continues to benefit the Greenback.

A further rise in the US bond yields, meanwhile, widens the US-Japan rate differential and drives flow away from the Japanese Yen (JPY). Apart from this, a more dovish stance adopted by the Bank of Japan (BoJ) undermines the JPY and adds credence to the near-term positive outlook for the USD/JPY pair. That said, a softer risk tone - amid worries about slowing global economic growth - lends some support to the safe-haven JPY and keeps a lid on any further gains for the USD/JPY pair.

Even from a technical perspective, the recent breakout through the very important 200-day Simple Moving Average (SMA)  and a subsequent move beyond the previous YTD peak favour bullish traders. The constructive setup is reinforced by the fact that oscillators on the daily chart are holding in the positive territory and are still far from being in the overbought zone. This, in turn, suggests that the path of least resistance for the USD/JPY pair is to the upside and any downtick is likely to get bought into.

Spot prices seem poised to surpass the 139.00 round-figure mark and test the next relevant hurdle near the 139.55-139.60 region. The upward trajectory could get extended further and allow the USD/JPY pair to reclaim the 140.00 psychological mark for the first time since November 2022.

On the flip side, the 138.00 round figure is likely to protect the immediate downside ahead of the 137.55-137.50 horizontal resistance breakpoint. Any further decline is likely to attract fresh buyers and remain limited near the 137.00 mark. The said handle coincides with the 200-day SMA and should act as a strong base for the USD/JPY pair. A convincing break below might prompt some technical selling and pave the way for some meaningful near-term corrective decline.

USD/JPY daily chart

Key levels to watch