Throughout the first half of the European trading session, the USD/JPY currency pair oscillated in a small band just below the psychological level of 135.00 as it struggles to acquire real momentum on Thursday. Spot prices, on the other hand, were still very close to the year-to-date peak, hovering around the 135.20–135.25 range established earlier this week.

The USD/JPY pair faces resistance as the US Dollar holds its recent gains to a multi-week high. Although there is still some cushioning on the downside, the Federal Reserve is expected to keep raising interest rates to control inflation, which has been stubbornly high.

James Bullard, president of the St. Louis Fed, added that this year’s inflation must be sustainable towards the target. This comes after last week’s US CPI and PPI data showed that inflation isn’t declining as quickly as anticipated. Also, the US data showed that the economy is still robust despite higher borrowing prices, so the Fed should be able to maintain its aggressive position. This sustains the high US Treasury bond yields and supports the dollar.

Furthermore, the possibility of further yen appreciation for the USD/JPY pair is supported by a moderate improvement in the risk attitude around the world, which tends to weaken the safe-haven Japanese yen.

Conclusion

While waiting for the Preliminary (second estimate) Q4 GDP print to be released, traders will be watching the weekly initial jobless claims report on Thursday. The demand for USD will be fueled by this and the rates on US bonds. In addition, the general risk attitude should support the development of short-term trading opportunities surrounding the USD/JPY pair. The underlying picture, however, points to the major’s upward movement as the direction of least resistance.