USD/JPY sticks to gains around 149.20-25 area, intervention fears act as headwind

• USD/JPY builds on the overnight solid recovery from a three-week low, albeit lacks follow-through.
• The underlying strong USD bullish sentiment turns out to be a key factor lending support to the pair.
• Intervention fears, along with the risk-off mood, seem to underpin the safe-haven JPY and cap gains.

The USD/JPY pair gains some positive traction during the Asian session on Wednesday and moves further away from its lowest level since September 14, around the 147.25-147.30 area touched the previous day. Spot prices trade around the 149.20 region, up 0.15% for the day, though lack bullish conviction in the wake of jawboning by Japanese authorities to defend the domestic currency.

Japan's Finance Minister Shunichi Suzuki reiterated that rapid FX moves are undesirable and that the government will not rule out any options against excessive moves. Suzuki, meanwhile, added that he doesn’t want to comment on whether Japan intervened in the FX market, so did Japan's top currency diplomat Masato Kanda. It is worth recalling that the Japanese Yen (JPY) strengthened sharply against its American counterpart late Tuesday, with the USD/JPY pair tumbling nearly 300 pips from levels just above the 150.00 psychological mark, or a fresh 11-month high.

Nevertheless, speculations that Japan will intervene in the FX market to combat a sustained depreciation in the JPY might keep a lid on any meaningful appreciating move for the major. Apart from this, the prevalent risk-off environment could further benefit the JPY's relative safe-haven status and contribute to capping the USD/JPY pair. The downside, however, remains cushioned in the wake of a strong bullish sentiment surrounding the US Dollar (USD), which stands tall near its highest level since November 2022 and remains well supported by the Federal Reserve's (Fed) hawkish outlook.

Several Fed officials recently backed the case for at least one more rate hike by the end of this year to bring inflation back to the 2% target. Adding to this, the better-than-expected release of the monthly JOLTS report on Tuesday, showing that there were an estimated 9.61 million open jobs in August, brought wage inflation back on the agenda. This, in turn, reaffirms expectations that the Fed will keep rates higher for longer and could extend the rate-hiking cycle into 2024, which lifts the benchmark 10-year US government bond to a fresh 16-peak and continues to underpin the Greenback.

The aforementioned fundamental backdrop seems tilted firmly in favour of bullish traders and suggests that any meaningful corrective slide around the USD/JPY pair is more likely to get bought into. Market participants now look to the US macro data – the ADP report on private-sector employment and the ISM Services PMI – later during the early North American session. This, along with the US bond yields, should influence the USD price dynamics. Apart from this, the broader risk sentiment might contribute to producing short-term trading opportunities around the major.

Technical levels to watch