Ella 
USD/JPY received strong follow-through buying on Wednesday, building on an overnight rebound from the 148.65 area, or its lowest level since October 11. The intraday rise continued into the first half of the European session, and in the last hour pushed the spot price to a new intraday high near 150.55.
Investors now appear to believe the Federal Reserve will take a more cautious approach to interest rate cuts amid hopes that U.S. President-elect Donald Trump’s policies will boost inflation. This in turn has pushed U.S. Treasury yields higher and is seen as a key factor driving outflows from the lower-yielding Japanese yen (JPY). Meanwhile, expectations for a less dovish Fed acted as a tailwind for the U.S. dollar (USD), providing an additional boost to the USD/JPY pair.
However, dollar bulls appear unwilling to bet aggressively, choosing instead to wait for a speech from Federal Reserve Chairman Jerome Powell for more clues on the path of future rate cuts. Additionally, Tokyo’s November consumer price index (CPI) released last week showed underlying inflation gaining momentum, fueling speculation that the Bank of Japan (BoJ) will raise interest rates again in December. This may help restrain further gains in USD/JPY.
Traders are now looking forward to the release of the U.S. private sector employment ADP report to get some momentum ahead of the release of the U.S. ISM Services PMI. However, focus will remain on Friday’s official monthly payrolls, or nonfarm payrolls, report, which should provide guidance for Fed policymakers on their next steps. This in turn will drive USD demand and determine the near-term trajectory of the USD/JPY pair ahead of the FOMC/BoJ event risk in two weeks.
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