Japanese Yen consolidates near August highs vs USD as hawkish BoJ, Fed bets clash

The USD/JPY pair struggles to capitalize on Friday's modest bounce from the vicinity of early August lows and kicks off the new week on a softer note. Spot prices currently trade just below the 156.00 mark, though the downside remains cushioned amid mixed fundamental cues.

The Japanese Yen (JPY) is underpinned by a more hawkish repricing of the Bank of Japan (BoJ) rate hike expectations and jitters over a potential official intervention. In fact, traders now seem to have fully priced in a 25 basis point (bps) rate hike at the next BoJ meeting on September 17–18 and see the possibility of a potential follow-up move in December. This, along with subdued US Dollar (USD) price action, turns out to be another factor acting as a headwind for the USD/JPY pair.

The better-than-expected US Nonfarm Payrolls (NFP) report, released on Friday, increased the chances of a rate hike by the US Federal Reserve (Fed) at the September 15-16 meeting amid concerns about price pressures stemming from elevated oil prices. USD bulls, however, seem hesitant and opt to wait for the release of the latest US inflation figures – the Producer Price Index (PPI) and the Consumer Price Index (PPI) on Thursday and Friday, respectively – before placing fresh bets.

However, escalating US-Iran tensions and the widening confrontation in the Strait of Hormuz act as a tailwind for the safe-haven Greenback. This, in turn, should help limit the downside for the USD/JPY pair amid relatively thin liquidity on the back of the Labor Day holiday in the US. Hence, it will be prudent to wait for some follow-through selling below the 155.30-155.20 pivotal support before positioning for an extension of last week's sharp decline from an over one-month peak.

USD/JPY daily chart

Technical Analysis

The USD/JPY pair holds a bearish near-term bias below the technically significant 200-day Simple Moving Average (SMA) at 158.46. Only a sustained break above this barrier would ease the current downside pressure. On the downside, the 155.30-155.25 horizontal zone might continue to act as an immediate support, which, if broken, would set the stage for a further near-term depreciating move.