Ella 
In Asia on Tuesday, USD/JPY encountered some supply and moved away from around 146.75, the highest level since November 2022 touched the previous day. USD/JPY is currently trading around the 146.30-146.35 area, down nearly 0.15% throughout the day. It seems to have ended its three-day winning streak, but it still seems difficult to achieve a significant corrective decline.
The U.S. dollar (USD) remained subdued for a second day and retreated from a near three-month high set on Friday amid further losses in U.S. Treasury yields. In addition, the market maintained speculation that the Japanese authorities will intervene in the foreign exchange market to support the local currency, which also put some downward pressure on the USD/JPY currency pair. That said, the wide divergence in monetary policy stance between the Bank of Japan (BoJ) and other major central banks, including the Federal Reserve (Fed), should act as a “tailwind” for USD/JPY.
Notably, the Bank of Japan is the only central bank in the world to maintain negative interest rates and is expected to stick to its ultra-loose monetary policy. Those bets were reaffirmed after Bank of Japan Governor Kazuo Ueda told a Jackson Hole seminar on Sunday that underlying inflation in Japan remained slightly below the 2% target. In contrast, Fed Chairman Jerome Powell’s speech bolstered expectations for a 25 basis point rate hike by the end of the year and said on Friday that the Fed may need to raise rates further to cool a still-excessive rate hike. inflation.
A growing number of analysts are starting to think the Fed will keep interest rates higher for longer, which should limit the downside for U.S. Treasury yields and support the prospect of some bargain hunting around the dollar. Therefore, it would be prudent to wait for strong follow-through selling before confirming that USD/JPY has peaked in the short-term and setting up positions for further depreciation moves. Traders will now turn their attention to U.S. economic data, including the Conference Board consumer confidence index and JOLTS job vacancies data due later in the North American morning session.
In addition, U.S. bond yields will also affect dollar volatility, coupled with broader market risk sentiment, which tends to drive demand for the safe-haven yen, which will help USD/JPY to present short-term trading opportunities. The focus this week, however, will remain on other key U.S. macro data, including the closely watched monthly jobs data — Friday’s nonfarm payrolls data.
