USD/JPY Hits Fresh High Amidst Oil-Driven Inflation Fears and Fiscal Concerns

The USD/JPY pair has reached a fresh high since July 31, but lacks follow-through buying and remains below 160.50 during the Asian session.

The Japanese Yen continues to underperform due to fiscal concerns stemming from rising bond yields, increasing the cost of servicing Japan's massive debt pile.

In contrast, the US Dollar is climbing to a nearly three-week high as oil-driven inflation fears reaffirm bets for a September interest rate hike by the Federal Reserve amid escalating US-Iran tensions.

The persistent wide US-Japan interest rate differential keeps the JPY carry trade active and supports the case for a further near-term appreciating move for the USD/JPY pair, but expectations for faster policy tightening by the Bank of Japan cap the upside as traders await the release of the US Nonfarm Payrolls (NFP) report on Friday.

Momentum indicators remain constructive, with the Relative Strength Index (RSI) hovering in the mid-60s and the Moving Average Convergence Divergence (MACD) line holding slightly positive, suggesting that buyers retain control and underlying demand is still present despite recent consolidation.