USD/JPY holds steady near multi-month top as traders await US PCE Price Index

• USD/JPY consolidates its recent strong rise to the highest level since November 2022.
• The divergent BoJ-Fed policy outlook acts as a tailwind for the major and favours bulls.
• Investors now look forward to the US PCE Price Index for a fresh directional impetus.

The USD/JPY pair trades with a mild positive bias during the Asian session on Friday and is currently placed around the 144.80-144.85 region, or its highest level since November 2022.

Despite the recent verbal intervention by Japanese authorities, expectations that the Bank of Japan's (BoJ) negative interest-rate policy will remain in place at least until next year continues to undermine the Japanese Yen. In fact, BoJ Governor Kazuo Ueda recently ruled out the possibility of any change in ultra-loose policy settings and signalled no immediate plans to alter the yield curve control measures. This, along with the recent rise in the US Dollar (USD), turns out to be a key factor acting as a tailwind for the USD/JPY pair.

The JPY bulls, meanwhile, seem rather unimpressed by that fact that core consumer prices in Japan's capital stays above the central bank's 2% target for the 13th straight month. In fact, Japan’s Statistics Bureau reported that Tokyo Core Consumer Price Index (CPI), which excludes volatile fresh food prices, grew by the 3.2% YoY pace in June. Furthermore, a core inflation gauge, which ignores both fresh food and energy prices, rose 3.8% through June and remained close to a 40-year peak touched in the previous month.

The USD, on the other hand, stands tall near a two-week high touched the previous day and remains well supported by the Federal Reserve's (Fed) hawkish outlook. It is worth recalling that the Fed earlier this month siganlled that borrowing costs may still need to rise as much as 50 bps by the end of this year. Adding to this, the upbeat US macro data released on Thursday gives the Fed another reason to continue raising interest rates. This further lends support to the USD/JPY pair and supports prospects for additional gains.

That said, technical indicators on the daily chart are flashing overbought conditions and might hold back traders from placing fresh bullish bets. Market participants might also prefer to wait on the sidelines ahead of the release of the US Core PCE Price Index - the Fed's preferred inflation gauge - later during the early North American session. The crucial data will influence expectations about the Fed's furture rate hike path, which, in turn, will drive the USD demand and provide a fresh directional impetus to the USD/JPY pair.

Technical levels to watch