USD/JPY Consolidates Around Mid-138.00s
USD/JPY Consolidates Around Mid-138.00s, Bulls Maintain Control Near YTD Top Ahead of US PMIs. The USD/JPY pair, after reaching a fresh year-to-date (YTD) high on Tuesday, has experienced a minor pullback without significant follow-through. Despite this retracement, the US dollar (USD) remains well supported by elevated bond yields and a policy divergence between the Federal Reserve (Fed) and the Bank of Japan (BoJ). The near-term outlook suggests the potential for further appreciation in the USD/JPY pair, and market participants eagerly await the release of US PMI data for additional direction.
USD/JPY Consolidation and Bearish Sentiment
Currently trading around the 138.50-138.45 region, the USD/JPY pair displays a mild negative bias as it retreats from the vicinity of the 139.00 mark. Although a meaningful pullback is yet to materialize, bearish traders should exercise caution as the supportive fundamental factors remain intact.
Fed's Hawkish Stance and US Treasury Bond Yields
The USD maintains its strength, positioned just below a two-month high achieved last Friday. This bullish sentiment arises from the prevailing belief that the Federal Reserve will continue to raise interest rates, providing a favorable backdrop for the USD/JPY pair. Several influential members of the Federal Open Market Committee (FOMC) have recently confirmed market expectations of a prolonged period of higher interest rates. Additionally, the optimism surrounding a potential debt ceiling agreement among US politicians contributes to the elevated yields of US Treasury bonds, bolstering the US dollar's performance.
Widening Rate Differential and BoJ's Dovish Stance
The 10-year US government bond yield has witnessed a seven-day consecutive increase, marking its longest winning streak since April 2022. This development results in a widening rate differential between the United States and Japan, further undermining the Japanese yen (JPY) and providing support for the USD/JPY pair. Compounding this effect is the Bank of Japan's more dovish stance, as Governor Kazuo Ueda emphasized the continuation of easing measures through yield curve control.
Upside Potential and Market Outlook
Given the supportive fundamental backdrop, the path of least resistance for the USD/JPY pair appears to be to the upside. Consequently, any downward correction is likely to be met with buying interest and remain limited. Market participants eagerly await the release of flash US PMI prints, scheduled for later during the early North American session, as well as other key economic indicators such as New Home Sales data and the Richmond Manufacturing Index. These factors, in conjunction with US bond yields and ongoing US debt ceiling discussions, are expected to influence USD price dynamics and provide further impetus to the USD/JPY pair.
Daily chart outlook
