USD/JPY looks to build on momentum beyond 141.00, highest since November 2022

• USD/JPY regains strong positive traction on Thursday and rallies to a fresh YTD top.
• The BoJ’s dovish outlook and weaker Japanese trade data weigh heavily on the JPY.
• The emergence of some USD buying remains supportive of the strong intraday rally.
• Traders now look to the US macro data for some impetus ahead of the BoJ on Friday.

The USD/JPY pair catches aggressive bids during the Asian session on Thursday and touches the 141.00 mark for the first time since November 2022, confirming a breakout through a two-week-old trading range.

The Japanese Yen (JPY) weakens in reaction to the weaker domestic data, showing that imports tumbled 9.9% in May and the trade deficit widened more than anticipated, to ¥1,372.5 billion in May. This validates expectations that the Bank of Japan (BoJ) will stick to its ultra-easy policy stance to support the economy and ensure that the recent positive signs are sustained. Apart from this, the emergence of some US Dollar (USD) buying provides an additional boost to the USD/JPY pair and remains supportive of the strong intraday move up.

The USD Index (DXY), which tracks the Greenback against a basket of currencies, is seen building on the overnight late rebound from a one-month low in the wake of the Federal Reserve's hawkish commentary. It is worth recalling that the US central bank, as anticipated, held interest rates steady at the end of a two-day policy meeting on Wednesday, but signalled that borrowing costs will increase by another 50 bps by end-December. This marks a big divergence in comparison to the BoJ's dovish outlook and acts as a tailwind for the USD/JPY pair.

The intraday rally, meanwhile, could further be attributed to some technical buying above the 140.25-140.30 hurdle, representing the top end of the recent trading band held over the past two weeks or so. The subsequent move-up could be seen as a fresh trigger for bulls and might have already set the stage for further gains. That said, traders might refrain from placing fresh bets and prefer to move to the sidelines ahead of the BoJ policy meeting on Friday. In the meantime, investors might take cues from the US macro data for some impetus.

Thursday's US economic docket features the release of monthly Retail Sales, the usual Weekly Initial Jobless Claims, the Empire State Manufacturing Index, the Philly Fed Manufacturing Index and Industrial Production figures. The data might influence the USD price dynamics and produce short-term trading opportunities around the USD/JPY pair, heading into the central bank event risk.

Technical levels to watch