USD/JPY reaches yearly high amidst Powell testimony, Fed hawkish stance

• USD/JPY ascends to a YTD peak of 142.88 as Fed Chair Jerome Powell’s hawkish commentary strengthens the US Dollar.
• Global economic slowdown fears resurface as major central banks, including the Bank of England, tighten monetary conditions.
• USD/JPY benefits from rising bond yields and dovish commentary from Bank of Japan board member Asahi Noguchi.

USD/JPY climbs to new year-to-date (YTD) highs at around 142.88 on Thursday, as the Federal Reserve (Fed) Chair Jerome Powell gets ready to finish its two-day testimony before the US Congress. Hawkish comments by Powell rattled Wall Street and underpinned the US Dollar (USD), recovering lost ground. The USD/JPY exchanged hands at 142.82 after hitting a low of 141.61.

Mixed economic data overshadowed by hawkish Fed rhetoric and BoJ dovishness

Global equities trade with losses. Aside from Powell’s comments on Wednesday, three major central banks raised rates, with the Bank of England (BoE) surprising the markets with a 50 bps hike, though it failed to boost the Pound Sterling (GBP). However, sentiment dampened as more central banks tightened monetary conditions, reigniting fears of a global economic slowdown.

Back to the US, data from the US Bureau of Labor Statistics (BLS) showed Initial Jobless Claims printing at its highest level since October 2021, jumping by 264K exceeding estimates of 260K. At the same time, the US Commerce Department released the US Current Account widened to $219.3 billion in Q1, from a revised $216.2 billion in Q4 2022, exceeding estimates of $217.5 billion.

Recently crossing the wires, Existing Home Sales in May grew at a 0.2% MoM pace, above estimates of a -0.5% plunge, more than the upward revised April-s -3.2%  contraction.

Even though data was mixed, the USD/JPY gained traction as bond yields rose. The US 10-year Treasury note yields 3.783%, five basis points higher than its open, underpinning the USD. The US Dollar Index (DXY) measures the buck’s value vs. its peers, advances to 102.377, and gains 0.30%.

On the Japanese front, the USD/JPY gets some help from dovish comments made by the Bank of Japan (BoJ) board member  Asahi Noguchi favoring the ultra-loose monetary policy to ensure wages, seen as a pivotal factor to drive inflation to its 2% target over a sustained period. Noguchi added that while core inflation is above the BoJ 2% target, it is seen as getting below the latter as the effect of high raw material prices “dissipates.”

Upcoming events

The Japanese economic agenda will feature inflation data, with most May readings expected to surpass the prior’s month data. In the US, S&P Global PMIs, and Fed speakers, are expected to deliver proper direction to the USD/JPY pair.

USD/JPY Price Analysis: Technical outlook

The USD/JPY is still upward biased, threatening to crack the 143.00 mark. If buyers conquer the latter, there would be no resistance between the current exchange rate and last year’s November 10 high of 146.59. The only possible resistance would be the October 27 daily low-turned resistance at 145.10. USD/JPY failure to crack 143.00, could open the door for further downside, like the November 22 high turned support at 142.24, followed by the 142.00 figure.