USD/JPY trades with modest gains around mid-146.00s, highest since November 2022

• USD/JPY hits a fresh YTD peak on Thursday and remains well supported by a bullish USD.
• The hawkish FOMC meeting minutes reaffirm bets for one more rate hike and lift the buck.
• The BoJ's dovish stance, along with the widening US-Japan yield spread, weighs on the JPY.

The USD/JPY pair builds on this week's breakout momentum through the 145.00 psychological mark and climbs to a fresh YTD top during the Asian session on Thursday. Spot prices currently trade around mid-146.00s, up 0.10% for the day, and remain well supported by the underlying bullish sentiment surrounding the US Dollar.

The USD Index (DXY), which tracks the Greenback against a basket of currencies, touches its highest level since July 6 and validates the overnight break through the very important 200-day Simple Moving Average (SMA) for the first time since November 30. The stronger US macro data released on Wednesday – Housing Starts and Industrial Production figures – and a more hawkish Federal Reserve (Fed) continue to act as a tailwind for the buck. This, along with the Bank of Japan's (BoJ) dovish stance weighs on the Japanese Yen (JPY) and lends additional support to the USD/JPY pair.

The minutes of the July 25-26 FOMC policy meeting signalled that a further rate hike remains in play later this year. Moreover, Fed officials no longer expect a “mild” recession this year, reaffirming market bets for higher rates for longer rates, pushing the US Treasury bond yields higher. In fact, the yield on the benchmark 10-year US government bond jumps to its highest level since October and is seen underpinning the USD. The resultant widening of the US-Japan rate-differential, meanwhile, is seen as another factor driving flows away from the JPY and pushing the USD/JPY pair higher.

Spot prices, meanwhile, have moved beyond the level that triggered an intervention by Japanese authorities in September and October last year. Moreover, Japan's top forex diplomat Masato Kanda said on Tuesday that he would take appropriate steps against excessive currency moves. Japan's Finance Minister Shunichi Suzuki, however, said that authorities are not targeting absolute currency levels when it comes to intervening in the market. Nevertheless, speculations that the recent weakness in the JPY might prompt some jawboning from authorities could cap the USD/JPY pair.

Apart from this, the prevalent risk-off environment might lend some support to the safe-haven JPY and hold back traders from placing fresh bullish bets. Market participants now look to the US economic docket, featuring the release of the usual Weekly Initial Jobless Claims data and the Philly Fed Manufacturing Index later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the USD/JPY pair.

Technical levels to watch