USD/JPY renews yearly high to 147.80 but lacks follow-through amid Japan meddling fears, US data eyed

• USD/JPY seesaws at the highest level in 2023 after rising the most in five weeks.
• Strong yields, unimpressive Japan data and hawkish Fed talks allowed Yen buyers to refresh YTD top.
• Expectations of Japan intervention escalate after a sharp rise and can drag the quote unless yields, US data support bulls.

USD/JPY bulls take a breather around 147.65, after refreshing the Year-To-Date (YTD) high, as fears of Japan intervention join pre-data anxiety amid early Wednesday. That said, the Yen pair traced firmer US Treasury bond yields the previous day to print the highest level of 2023 after unimpressive Japan data contrasted with upbeat details of the US statistics and hawkish Federal Reserve (Fed) talks. It should be noted that the risk-aversion also underpinned the US Dollar’s haven demand and fueled the major currency pair.

On Tuesday, Japan’s Jibun Bank Services PMI for August confirmed the 54.3 initial forecasts and failed to impress the JPY buyers. That said, the Bank of Japan (BoJ) officials have repeatedly defended their dovish bias and the latest unimpressive data allows them to smile.

Elsewhere, the US Dollar Index (DXY) rose to the highest level since mid-March after details of the US Factory Orders joined the broad risk-off mood and hawkish Fed talks. That said, US Factory Orders for July dropped to the lowest since mid-2020 while posting -2.1% MoM figures versus -0.1% expectations and 2.3% previous growth. However, the orders excluding transport rose 0.8% MoM, Shipments of goods stayed firmer and inventories marked the first increase in three months.

Talking about the US central bank signals, Fed Governor Christopher Waller signaled during a CNBC interview that data will drive whether the Fed needs to lift rates again, as well as confirm whether the Fed is done raising rates. The policymaker also added, "Data is looking good for soft landing scenario,” which in turn allowed the US Dollar to remain firmer and fuelled the USD/JPY.

Elsewhere, fears of China’s economic slowdown and the soft landing in the US roiled the sentiment and fuelled the Greenback. China's Caixin Services Purchasing Managers' Index (PMI) for August dropped to the lowest level of the year with 51.8 figures versus 54.1 prior. While giving the details, Dr. Wang Zhe, Senior Economist at Caixin Insight Group said that the gauges for business activity and total new business remained above 50 for the eighth consecutive month, but both readings were lower than in July.

It’s worth observing that the market’s lack of confidence in the Chinese measures to defend the economy, as well as the recent Sino-American tensions over Taiwan and the US businesses’ discomfort in Beijing, also challenged the market sentiment and put a floor under the US Dollar.

That said, China recently announced a slew of quantitative and qualitative measures to defend the economy from losing the post-COVID-19 recovery. On the same line was the news suggesting the ability to avoid default by China’s biggest reality player Country Garden.

Against this backdrop, US 10-year Treasury bond yields rose eight basis points (bps) to 4.26% while Wall Street benchmarks closed with minor losses.

Moving on, a light calendar in Japan and fears of the market intervention may allow USD/JPY to pare its latest gains ahead of the US ISM Services PMI for August, expected 52.6 versus 52.7 prior, as well as the final readings of the US S&P Global PMIs for the said month.

Also read: ISM Services PMI Preview: Strength may spook markets, boosting US Dollar

Technical analysis

A daily closing beyond a nine-week-old rising resistance line, now support around 147.10, directs the USD/JPY buyers toward the November 2022 high of near 148.80.