USD/JPY Price Forecast: Testing 200-day SMA amid strong US data, higher yields

On Wednesday, the US Dollar (USD) remained stable against the Japanese Yen (JPY), with the pair trading around 158.47, just below the critical 200-day Simple Moving Average (SMA) of 158.47. The strength behind the USD was attributed to robust US business activity data and a disappointing bond auction that led to a surge in US Treasury yields.

The US S&P Global Purchasing Managers Index (PMI) figures released on Wednesday indicated a strong acceleration in business activity for the first time in five years. US firms reported a significant rise in job creation, leading to higher wages amid rising input costs associated with high energy prices.

The data bolstered expectations that the Federal Reserve (Fed) might raise interest rates further in the coming months. Federal Reserve Governor Michael Barr echoed these sentiments, stressing that price stability is "crucial" for supporting sustainable growth and maximum employment. On Wednesday, a five-year US Treasury bond auction witnessed weak demand, which caused yields to soar across the curve, further strengthening the USD.

USD/JPY increased by 0.8% this week and has climbed more than 3% in just two weeks. The pair's bullish momentum is supported by technical indicators such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) histogram. However, the key resistance level at 158.30, where the descending trendline from July highs intersects with the 200-day SMA, is currently under pressure.

A break of the 200-day SMA could provide further confidence to bulls and expose the late August and early September highs at the 160.35 area.

On the downside, Wednesday's low of 157.36 could trigger a potential bearish reaction ahead of the September 21 low at 156.60 and the September 17 low, around 155.35. The USD has been the strongest currency against the Australian Dollar this week. Traders remain cautious ahead of the Trump-Xi meeting. USD/JPY retreated from three-week highs and traded near 158.00 in the Asian session.

Meanwhile, Japanese bond yields surged, driven by concerns over Tokyo's possible intervention. The Swiss National Bank (SNB) maintained its key policy rates unchanged at 0%, as anticipated, with the Bank of Japan (BoJ) raising its short-term interest rate target to 1.25% from 1.00%.