USD/JPY climbed to a new 38-year peak on Tuesday, driven by higher U.S. bond yields, prompting official commentary. Notably, there was an absence of the usual readiness to intervene from Japanese officials, suggesting that given the wide yield gap between Japan and the U.S., long-term intervention might be less effective. Despite stalling before reaching another significant figure, consolidation has reduced some bullish momentum. However, a rise above 162.00 is possible, with analysts eyeing potential targets at 165.00 and 170.00. Market participants should remain cautious, considering the swift and significant decline seen during the last intervention, which drove USD/JPY from 160.24 to 151.86. Authorities have expressed concern about the impact of rapid, one-sided forex moves on the Japanese economy, and despite no explicit mention of intervention in the latest warnings, market players should not dismiss the possibility of official action.

USD/JPY remained flat as the initial dip, led by Powell’s remarks, was quickly bought back. Powell was seen as slightly dovish, noting the continuation of the disinflation trend and flagging that unexpected employment weakness could prompt policy reactions. A series of upcoming U.S. data, including ISM and Initial Jobless Claims due on July 3, will dictate near-term actions. The recent rise in U.S. Treasury yields and firmer equities keep USD/JPY risks higher. Key support levels are at 161.26 (55-hour moving average), 161 (100-hour moving average), and 160.25 (pre-intervention peak).

Fed Chair Powell commented on the significant progress made on inflation and emphasized the need for confidence before reducing policy rates, projecting inflation to be in the mid to low twos a year from now. He highlighted the importance of tackling the large budget deficit sooner rather than later. Fed's Goolsbee indicated that as inflation decreases, policy becomes tighter, stressing the need to maintain restrictive measures as long as necessary. The U.S. May JOLTS Job Openings came in at 8.140 million, surpassing forecasts.

In Japan, the finance minister affirmed vigilance over forex markets but avoided issuing a warning about intervention. Mizuho Bank's CEO projected that Japan's interest rates could rise to 0.5% by March 2025. Additionally, rating agency S&P issued debt warnings to the U.S., France, and other top economies, highlighting ongoing fiscal concerns.

Overall, the dynamics of USD/JPY remain influenced by U.S. yields, policy expectations, and geopolitical uncertainties, necessitating careful monitoring by market participants.

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