USD Surges to Two-Month High Against JPY on Stronger Q2 GDP Growth and Elevated Bond Yields

The US dollar (USD) continued its upward momentum against the Japanese yen (JPY), reaching a two-month high on Thursday. The USD/JPY pair gained strength after the release of stronger-than-expected US Q2 GDP growth figures, which tempered market bets for an October Federal Reserve rate hike.

The Personal Consumption Expenditures (PCE) report for August also had a soft impact on the market, but was later offset by the upward revision of the US Q2 GDP growth figures. This, combined with elevated US bond yields near multi-year peaks, lifted the USD to its highest level since July 28.

Geopolitical tensions between the US and Iran also contributed to the safe-haven buck's strength, as US President Donald Trump rejected a seven-day ceasefire proposal from Iran. Japan's top currency diplomat Atsushi Mimura and Finance Minister Satsuki Katayama warned markets to take joint US-Japan messaging on FX depreciation seriously.

Traders are now looking forward to the release of the US Nonfarm Payrolls (NFP) report, which will provide crucial cues about the Fed's policy path. The USD/JPY pair has been showing some resilience below the 38.2% Fibonacci retracement level and remains below the 100-day Simple Moving Average (SMA).

The technical analysis suggests that a failure to reclaim the 50.0% retracement at 158.45 would keep the pair capped within a corrective phase against the recent advance.