USD/JPY Rises To A Fresh Nine-Month High Bolstered By Rising Yields, A Slew Of Key Fed Officials’ Speeches Awaited

Key Takeaways:

• USD/JPY cross witnessed buying on Monday and rose to a fresh nine-month high/148.482 level
• The ongoing rise in U.S. Treasury bond yields, bolstered by hawkish Fed expectations, helps exert upward pressure on the USD/JPY cross
• The divergence in monetary policy adoption between the Federal Reserve (Fed) and the Bank of Japan (BoJ) continues to weigh on the Yen
• A slew of key Fed officials’ speeches this week set to provide USD/JPY cross-directional impetus

The USD/JPY cross rose on Monday to a fresh nine-month high/148.482 level during the early-Asian session before late retreating to trade below the 148.300 mark. The shared currency is still on course to post one of its best daily gains as it remains under heavy bullish pressure, supported by the generally positive sentiment around the buck. Elevated U.S. Treasury bond yields, bolstered by hawkish Fed expectations, were a key factor supporting the greenback, which helped exert upward pressure on the USD/JPY cross. The market seems convinced that the Federal Reserve (Fed) will raise interest rates by at least 25 basis points (bps) before the end of this year.  

The bets were reaffirmed after the Federal Reserve on Wednesday announced it had left its federal funds rate unchanged, ranging from 5.25% to 5.5% during its September meeting, matching market expectations but signalled there could be another hike this year. Projections released in the dot-plot showed the likelihood of one more increase this year, then two cuts in 2024, with policymakers now seeing the fed funds rate at 5.6% this year, the same as in the June projection, while it is seen higher at 5.1% in 2024, compared to 4.6% seen in June.

Further contributing to the sentiment around the USD/JPY cross was the decision by the Bank of Japan (BoJ) to maintain its ultra-loose policy and leave its rate unchanged on Friday. In a policy statement after its September meeting, the Japanese central bank said it would maintain short-term interest rates at -0.1% and cap the 10-year Japanese government bond yields around zero.

Additionally, the BoJ mentioned that it would patiently continue with monetary easing and respond to developments in economic activity, the dynamics of prices, and financial conditions amid extremely high uncertainties at home and abroad. By doing so, the board aims to achieve a price stability target of 2% sustainably, accompanied by wage increases. The committee further reiterated that it would take extra easing measures if needed while being aware of rising inflation expectations.

That said, the divergence in monetary policy adoption between the Federal Reserve (Fed) and the Bank of Japan (BoJ) continues to undermine the Yen and suggests the path of least resistance for the USD/JPY pair is to the upside.

Moreover, the generally weaker tone around the U.S. equity markets could further support the greenback and help cap the downside for the USD/JPY cross. Additionally, a slew of key Fed officials are set to speak this week, and if they maintain a hawkish position, the U.S. Treasury bond yields could rise further, which would help push the greenback higher against the Yen.

As we advance without any significant economic news data from both dockets, the broader market risk sentiment and U.S. Treasury bond yields will continue to influence the U.S. dollar and provide short-term trading opportunities around the USD/JPY pair. The focus, however, remains on the critical U.S. inflation data set for release on Wednesday. March’s CPI data is lower at 0.2%, down from 0.4% the previous month. Every year, March’s CPI is seen lower at 5.2%, down from 6.0%. Excluding food and energy, Core cpi last month was also lower at 0.4%, down from 0.5% the previous month.

Technical Outlook: Four-Hour USD/JPY Price Chart

From a technical perspective, some follow-through buying would face initial resistance at the 148.4 level (R1). Buying interest could gain momentum if the price decisively clears this barrier, paving the way toward the key resistance level (upper limit of the Bullish Symmetric Triangle chart pattern extending from the mid-August 2023 swing high). A subsequent break above the aforementioned resistance level would reaffirm the bullish outlook and pave the way for more gains around the USD/JPY cross.

All the technical oscillators on the chart are in positive territory, suggesting the continuation of the bullish price action this week. Further supporting the bullish outlook is the acceptance of the price below the technically strong 200-day (yellow) Exponential Moving Average (EMA) at the 140.634 level. Additionally, the 50 (red) and 200 (yellow) day EMA crossover (golden cross) at the 140.709 level further validate the bullish thesis.

If sellers jump back in and spark a bearish reversal, initial support comes in at the lower limit of the bullish symmetric triangle chart pattern extending from the mid-July 2023 swing low. If sellers breach this key floor (bearish price breakout), the USD/JPY cross could accelerate its decline toward the pivot point (P) at the 144.227 level. A convincing move below this level would act as a fresh trigger for sellers to continue to push down the price, paving the way for a drop toward the 146.590 support level (S1). On further weakness, the focus would shift lower to the 145.895 support level (S2).