USD/JPY: the yen is walking on thin ice

The dollar is again rushing like a tank in almost all directions. The yen is still on the defensive, but, apparently, the forces are already running out. Most analysts predict victory in this fight for the greenback.

The greenback showed impressive growth at the start of Wednesday. It jumped 0.5% at the beginning of the Asian session and reached a new 20-year high at 114.70.

The key driver for the dollar was a sharp surge in the yield of 10-year US government bonds. Today, the indicator has exceeded 4% for the first time in 12 years.

Hawkish comments from Federal Reserve officials contributed to the rapid rise in yields. Yesterday, three American politicians spoke out in favor of a more aggressive rate hike.

Moreover, one of them, the president of the Federal Reserve Bank of Chicago, Charles Evans, announced the need to raise interest rates to the range of 4.50-4.75% in order to return inflation to the 2% target.

Recall that now the interest rate in the United States is at the level of 3.0-3.25%, and the growth of consumer prices on an annualized basis is 9.1%.

Of course, the fact that the Fed has to further strengthen its anti-inflation campaign cannot but please dollar bulls. Today they have become more active on almost all fronts.

The greenback showed parabolic growth paired with the New Zealand dollar (+1%), the British pound (+0.9%), the Australian dollar (+0.8%) and the euro (+0.4%).

The only hard nut for the greenback was the Japanese yen. The JPY, which has fallen against the USD more than other currencies this year, is holding surprisingly steady on Wednesday morning.

At the time of release, the dollar-yen pair was trading at 144.70, which is 0.05% lower than the closing price of the previous day.

The Japanese currency shows strong resistance against the dollar. However, there are no significant fundamental reasons that would contribute to the yen's growth.

Most analysts associate the current strength of the JPY with the immunity received from the Japanese government. Recall that last week, for the first time since 1998, Japan intervened in support of its national currency.

The politicians were forced to take such a step by a new sharp collapse of the JPY exchange rate. The yen was sent into free fall by Bank of Japan Governor Haruhiko Kuroda, who announced the continuation of an ultra-soft policy, despite the next rate hike in America.

On the dovish decision of the BOJ, the USD/JPY pair broke through the psychologically important level of 145, which turned out to be a red line for the Japanese authorities.

According to analysts, Japan will continue to zealously defend this peak and, if it is taken, will again intervene in the market.

The risk of intervention is the only saving straw that yen bulls are clinging to now, while there are many more negative factors contributing to the further decline of the JPY.

The main pressure on the Japanese currency continues to be exerted by the increasing divergence in the monetary policy of the Fed and the BOJ.

Currently, the difference in US and Japanese interest rates is 4%, and everything points to its further growth.

Fed officials are actively lobbying for a more aggressive policy, while the BOJ shows no signs of capitulation.

The minutes of the BOJ's July meeting were published this morning. According to it, the board members still do not see the need to fight inflation by raising rates, despite the global tightening trend.

Many experts believe that the downward trend in the yen will continue until Kuroda retreats from his outsider stance.

The 3-week-old descending resistance line around 145.00 is the nearest key obstacle that keeps the USD/JPY pair on its way to a new 24-year high.

Bulls for the USD/JPY pair led the price to the level of 145 during the Asian session, but the chances of closing the dollar above this mark are still small.

If bulls fail to break above the 145 mark in the short term, there may be a significant risk of a strong downward correction in the coming sessions.