The USD/JPY pair continues its ascent, hitting the 159 level on Friday. The Japanese Yen (JPY) is weakening due to softer inflation data, while the US Dollar (USD) is gaining momentum on rising US Treasury yields and hawkish Fed commentary. With the pair now nearing the intervention zone, where Japanese authorities previously stepped in to support the Yen, traders are on high alert.
Fed’s Hawkish Stance Fuels USD/JPY Rally
The recent surge in USD/JPY is primarily driven by higher US bond yields, fueled by hawkish remarks from Fed officials, who are pushing back against market expectations for early rate cuts. This has led to increased demand for the USD, pushing it higher against the JPY.
Japanese Inflation Cools, Weighing on Yen
The latest Japanese Consumer Price Index (CPI) data revealed a slowdown in core inflation, primarily due to a decline in energy subsidies. This softer inflation outlook has diminished the likelihood of the Bank of Japan (BoJ) raising interest rates anytime soon, further weakening the Yen.
Intervention Risk Looms as USD/JPY Nears Critical Level
As the USD/JPY pair approaches the 160 level, the risk of intervention by Japanese authorities increases significantly. Recent warnings from officials suggest a growing willingness to defend the Yen against excessive depreciation. This possibility adds a layer of complexity to the pair’s outlook, as technical indicators signal further upside potential but intervention could trigger a sharp reversal.
Key Takeaways:
- USD/JPY is rallying due to rising US Treasury yields and a weaker Yen.
- Softer Japanese inflation data reduces the likelihood of BoJ rate hikes, further weakening the Yen.
- The pair is approaching the intervention zone, raising the risk of Japanese authorities stepping in to support the Yen.
- Technical indicators suggest further upside potential, but the risk of intervention could disrupt the bullish trend.