Ella 
USD/JPY snapped a drop to the 147.35 area during the Asian session and climbed back around levels not seen since November 2022 touched the previous day. USD/JPY is currently trading around 147.80, but the bullish momentum in USD/JPY is lacking amid fears that the Japanese authorities will weaken the exchange rate further.
In fact, Japan’s top currency diplomat Masato Kanda verbally intervened in the currency market this morning, saying that if speculation in the currency market continues, the Japanese authorities will not rule out any options. In addition, the market maintained concerns about the deteriorating economic situation in China, which suppressed market sentiment, prompting some safe-haven funds to flow into the yen and exerting some downward pressure on the USD/JPY currency pair. Market concerns were renewed on Tuesday after a survey of private firms showed China’s Caixin services sector purchasing managers’ index grew at its slowest pace in eight months.
In addition, U.S. Commerce Secretary Gina Raimondo played down the possibility of the Trump administration adjusting its tariff policy on China before the U.S. Treasury Department completes an ongoing review. This further weakened investors’ appetite for riskier assets, favoring the yen. That said, a more dovish stance from the Bank of Japan (BoJ) still weighs on the yen and limits the downside for USD/JPY. In fact, the Bank of Japan, the only central bank in the world to maintain negative interest rates, is expected to stick to its ultra-loose monetary policy stance.
Moreover, BOJ board member Toyoaki Nakamura recently said it was too soon to tighten monetary policy, as the recent rise in inflation was largely due to rising import costs, rather than wage growth. In a sharp departure from the Fed’s hawkish outlook, Bank of Japan Governor Kazuo Ueda said underlying inflation remained slightly below the 2% target, ensuring policy would remain on hold until next summer. In fact, the market still sees the possibility of the Fed raising interest rates by 25 basis points before the end of the year.
The view that the Federal Reserve will keep interest rates higher for longer still supported higher U.S. Treasury yields and stabilized the U.S. dollar (USD) after hitting near a six-month high on Tuesday. This, in turn, suggests that the path of least resistance for USD/JPY is to the upside, with apparent consolidation downside still likely to be viewed as a buying opportunity. Traders will now focus on U.S. economic data, including the release of the ISM Services Purchasing Managers Index, which will influence the dollar and provide fresh impetus to USD/JPY during the North American morning session.
