USD/JPY approaches overbought conditions after FOMC minutes

• USD/JPY trades near 146.30, seeing more than 0.50% gains on the day.
• The July FOMC Meeting Minutes showed members opening the door for further interest rate hikes.
• Rising yields are tractioning the USD.
   

On Wednesday, the USJ/JPY pair jumped above 146.00, showing more than 0.50% of daily gains and continues to trade in its highest levels in nine months. On the one hand, the Greenback strengthened on the back of investors placing hawkish bets on the Federal Reserve (Fed), after the release of the Minutes of the Federal Open Market Committee (FOMC) for the July meeting, which showed members considering another hike amid the upwards risks of inflation. On the Yen's side, it continues to trade vulnerable against its rivals amid monetary policy divergences.

The FOMC  published its minutes from the July meeting and revealed that participants still perceive inflationary pressure as quite high. In that sense, members referred to keeping the door open for more interest rate hikes if upcoming data shows robustness. On the other hand, some participants show a less aggressive stance favouring holding interest rates steady for the time being. That being said, it will all come down to the incoming data, just as Jerome Powell stated in its last press conference and the US economy is giving reasons for the FOMC members to be concerned with inflation remaining sticky as the rising economic activity and the hot labour market may eventually lead to more inflationary pressures.

In response to these developments, the US treasury yields for the 2-year, 5-year, and 10-year bonds are up, increasing between 0.50% and 1%, contributing to a 0.20% daily gain in the US dollar, as measured by the DXY index.

USD/JPY Levels to watch

Analyzing the daily chart, it is evident that USD/JPY is bullish in the short term. Relative Strength Index (RSI) is comfortably settled above its midline in positive territory, exhibiting an upward trajectory. The presence of green bars on Moving Average Convergence Divergence (MACD) reinforces the growing bullish momentum. Furthermore, the pair is above the 20,100,200-day SMAs, implying that the bulls retain control on a broader scale.  However, traders should be aware that indicators are near overbought conditions so a downward correction may be on the horizon.

Support levels: 145.00, 144.50, 144.00.

Resistance levels: 146.50, 147.00, 147.50.

USD/JPY Daily chart