The USD/JPY pair extended its overnight upsurge from the 148.65 area, the lowest level since October 11 and gained strong follow-through traction on Wednesday (4/12). The intraday upsurge extended into the first half of the European session and lifted the spot prices to a fresh intraday high, around the 150.55 region in the last hour.

Investors now seem convinced that the Federal Reserve (Fed) will take a more cautious approach to cutting interest rates amid expectations that US President-elect Donald Trump's policies will boost inflation. This, in turn, pushed the US Treasury bond yields higher and was seen as a key factor driving flows away from the lower-yielding Japanese Yen (JPY). Meanwhile, expectations for a less dovish Fed should act as a tailwind for the US Dollar (USD) and provide an additional boost to the USD/JPY pair.

The USD investors, however, seemed reluctant to place any aggressive bets and preferred to wait for Fed Chair Jerome Powell's speech for more clues on the future path of interest rate cuts. Additionally, last week's Tokyo Consumer Price Index (CPI) data for November indicated that underlying inflation is picking up and fueled speculations that the Bank of Japan (BOJ) will raise interest rates again in December. This might help limit any further upside for the USD/JPY pair.

Traders now look forward to the release of the US ADP report on private sector employment for some impetus ahead of the US ISM Services PMI. The focus, however, will remain on the official monthly employment details or the Nonfarm Payrolls (NFP) report on Friday, which will guide Fed policymakers in their next decision. This, in turn, will drive the USD demand and determine the near-term trajectory for the USD/JPY pair ahead of the FOMC/BOJ event risk in two weeks.

Source: FXStreet