USD/JPY renews 24-year high below 140.00 as hawkish Fed bets buoy DXY ahead of US NFP

• USD/JPY remains firmer around the highest levels since 1998 during five-day uptrend.
• US two-year Treasury yields rose to 15-year high as softer US data couldn’t tame hawkish Fed bets.
• Risk-negative headlines from China, Taiwan add strength to the upside momentum.
• US ISM Manufacturing PMI, risk catalysts are important to track for fresh impulse ahead of Friday’s NFP.

USD/JPY remains bid for the fifth consecutive day as it refreshes the highest levels since 1998, up 0.45% intraday near 139.60 during early Thursday morning in Europe. The yen pair’s latest run-up could be linked to the strong US Treasury yields, as well as hawkish bets on the US Federal Reserve’s (Fed) next moves. Also keeping the quote firmer is the risk-off mood that underpins the US dollar’s safe-haven demand.

That said, the US 10-year Treasury yields refresh a two-month high of around 3.21% while the two-year bond coupons jump to the highest levels since 2007, near 3.51% at the latest. Also portraying the sour sentiment is the S&P 500 Futures’ 0.56% intraday fall to the lowest levels since late July, at 3,930 by the press time.

Elsewhere, the CME’s FedWatch Tool portrays 74.0% chance of a 75 basis points Fed rate hike in September, versus 73.0% the previous day.

The hawkish Fed bets seem to ignore softer US data as the ADP Employment Change grew by 132K versus 288K expected and 270K prior. The reason could be linked to the average wage increases for August that rose 7.6% y/y and the same kept the Fed policymakers hawkish. Following the data, Cleveland Federal Reserve Bank President Loretta Mester said on Tuesday that she was not anticipating the Fed to cut rates next year, as reported by Reuters. Further, the newly appointed Dallas Fed President Lory Logan joined the lines of hawkish fellow US central bankers while saying, “Restoring price stability is No. 1 priority.”

In addition to the Fed-linked catalysts, Eurozone inflation data and the hawkish comments from the European Central Bank (ECB), as well as from the Bank of Japan (BOJ) policymakers, also portray the central bankers’ broadly hawkish stance and favor the USD/JPY rally.

Additionally, the chatters surrounding another ship blocking the moves in the Suez Canal, before the latest refloat, joined pessimism over China’s covid conditions, downbeat statistics and tussles with the US over Taiwan appear to weigh on the market sentiment of late. Recently, Taiwan's President Tsai Ing-Wen mentioned that Taiwan wants to expand its semiconductor industry collaboration with the US.

At home, Japan’s Jibun Bank Manufacturing PMI for August, 51.5 versus 51.0 initial forecast, seems to gain major attention. Also likely to have been ignored are comments from Japan’s Finance Ministry that stated, “Japan's government is watching currency moves with a ‘high sense of urgency’ as rapid exchange-rate moves are undesirable.”

Moving on, the US ISM Manufacturing PMI for August, expected 52.8 versus 52.0 prior, could entertain the traders ahead of Friday’s US Nonfarm Payrolls (NFP). Also important will be the moves of the Treasury bond yields, as well as headlines surrounding China.

Technical analysis

A clear upside break of July’s peak near 139.40 keeps USD/JPY bulls directed towards the 140.00 threshold. However, the 61.8% Fibonacci Expansion (FE) of the pair’s late March to early August moves, near 141.60, could join the nearly overbought RSI (14) to challenge the upside momentum.