September 23, 2022 01:55 AM ET
By: AnalysisWatch
The USD/JPY is struggling to capitalize on the previous day's late recovery from an over two-week low and is oscillating in a range in the first half of trading on Friday. The pair is currently in neutral territory around 142.25 and is influenced by a combination of divergent forces.
The Japanese yen continues to receive support from the fact that the authorities have intervened in the market for the first time since 1998 to halt the rapid decline of the domestic currency. Apart from that, the prevailing low-risk environment amid growing recession fears supports the JPY safe haven and acts as a headwind for the USD/JPY pair. However, the strong US dollar is helping to limit the downtrend in spot prices, at least for now.
The USD index, which measures the dollar's performance against a basket of currencies, remains near a 20-year high as the Fed adopts a moderately hawkish stance. Recall that the Fed signaled on Wednesday that it is likely to raise interest rates more aggressively to keep inflation in check. This still argues for a further rise in U.S. government bond yields and continues to support the U.S. dollar.
The Bank of Japan (BoJ), on the other hand, aggressively defended its yield curve ceiling and reaffirmed its commitment to ultra-low interest rates on Thursday. This is widening the interest rate differential between the U.S. and Japan and supporting the prospects of fresh buying in the USD/JPY currency pair. It is worth noting that the divergence between the Fed and the Japanese central bank has been a key factor in the yen's plunge of over 25% against the USD since early 2022.