USD/JPY test daily highs near 143.20 as dollar’s rally continues

• Dollar gains versus yen even as markets tumble.
• Higher Treasury yields offset risk aversion.
• USD/JPY slowly recovering ground after the intervention decline.

The USD/JPY is rising on Friday amid tensions across financial markets. The pair found support above 142.50 and it is testing daily highs near the 143.20 area. The rally of the dollar across the board remains solid and firm.

Usually, when markets drop sharply the yen is the best performer but is not the case on Friday. The dollar is the best performer. It confirmed gains following the better-than-expected PMI S&P Global numbers for September. The DXY is approaching 113.00, up 1.30% while EUR/USD and GBP/USD trade at fresh cycle lows.

Another weekly gain?

The USD/JPY is about to end the week with a modest gain and far from the top. The intervention from Japanese authorities to boost the yen explains the move away from the recent multi-year highs. The pair peaked at 145.89 before pulling back.

The key driver in the rally continues to be the divergence in monetary policy between the Bank of Japan and the Federal Reserve. The BoJ kept its accommodative policy unchanged on Thursday while the Fed raised interest rates by 75 basis points.

“The immediate reaction to the intervention announcement facilitated a sharp rally in the Japanese currency and brought the yen back from record low levels against the dollar. However, we view BoJ intervention as only a temporary respite for the yen. In our view, as long as the paths for monetary policy between the Fed and BoJ continue to diverge and interest rate differentials widen, the bias remains for the yen to continue to weaken and retest lows in the near future”, said analysts at Wells Fargo.

Technical levels