The Japanese yen extended its rally for an eighth straight session in Asian trading on Thursday, climbing to a two-week high against the U.S. dollar. The currency’s persistent strength reflects growing safe-haven demand as investors remain cautious about U.S. financial stability following recent credit rating actions. Market participants have also been adjusting their positions ahead of key U.S. inflation data due Friday, which could provide further direction for Federal Reserve policy expectations.
The yen’s upward momentum has been reinforced by shifting expectations around Bank of Japan policy, with markets now pricing in a 65% chance of rate action by October. This marks a significant change from just weeks ago, as traders digest hawkish-leaning comments from BOJ officials and signs of sustained wage growth in Japan. The policy divergence story between the BOJ and other major central banks appears to be entering a new phase, with USD/JPY breaking below the key 154.50 support level and approaching April lows near 152.90.
Technical indicators suggest the yen’s rally may be approaching overbought territory, potentially signaling near-term consolidation. However, the currency’s momentum remains strong as risk sentiment stays fragile across global markets. The combination of fundamental factors – including U.S. fiscal concerns and changing BOJ policy expectations – along with technical breakdowns has created a challenging environment for dollar bulls, with many market participants awaiting clearer signals before establishing new positions in the currency pair.
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