USD/JPY has the fuel it needs to break out above long-term resistance at 113.27-28 due to PBoC willingness to let the yuan fall and increasing confidence that Fed-BOJ policy divergence will persist.
The PBoC-managed CNY today fell below prior lows versus the USD and a basket of other currencies, suggesting Chinese officials are willing to use depreciation as part of their monetary easing strategy to offset the impact of a trade war with the U.S. This leaves other Asia currencies, including JPY, which has ceded its haven appeal to the dollar, at risk for further losses.
Powell has reaffirmed Fed tightening plans and today's report of jobless claims at 48-year lows reinforces that view.
The inflationary impact of tariffs, at least initially, will sway the Fed from slowing rate hikes, to the extent USD gains don't cancel out their impact.
And stealth BOJ QE tapering is no longer seen as JPY bullish, because it's done merely to retain a modest yield curve.
If USD/JPY clears 115, a run to the post-U.S.
election high at 118.66 will be in prospect.