The USD/JPY bulls remain eager to breach the threshold of 148. They came close to breaking above this level in the morning but then retreated on worries over Tokyo's looming currency intervention. Can the bulls muster enough momentum to continue their ascent? And if so, for how long can they hold their ground?

Fresh wind for USD/JPY

The US dollar experienced a robust surge against the yen on Thursday morning, reaching a new 10-month high of 147.85. This buoyancy can be largely attributed to the hawkish sentiment of the Federal Reserve.

While it might be premature to suggest that traders are shifting gears, the majority still anticipate the Federal Reserve to refrain from hiking interest rates at the upcoming meeting this month.

Yet, recent US macroeconomic data has nudged market participants to recalibrate their expectations for the November FOMC meeting. Currently, the odds of the Federal Reserve tightening its stance hover around 50%, a jump from 40% a few days prior.

This shift can be traced back to the US ISM Non-Manufacturing index for August which surpassed even the most optimistic projections, soaring to 54.5, its highest level since February, after hitting 52.7 in July this year.

A rise in new orders and firm pricing from businesses underpin the vigorous services sector trend, indicating the US economy's resilience and the persistent inflationary pressure.

Undeniably, a combination of steady economic growth and stubborn inflation grants the Federal Reserve a firmer footing to justify further tightening this year, eliminating any urgency to soften its monetary stance.

Such hawkish prospects serve as fuel for the US dollar, especially against the yen, which remains pressured by the Bank of Japan's dovish policy.

Junko Nakagawa, a representative of the Bank of Japan, defended the prevailing monetary stance, emphasizing that the central bank is still a distance away from its inflation target.

This sentiment echoes her colleague Hajime Takata who recently highlighted the need for an ultra-loose monetary policy, given the existing uncertainties around inflation.

Evidently, the current fundamental backdrop continues to favor the dollar. Driven by the pronounced monetary divergence between the US and Japan, the yen has slid over 5% in the past quarter. Year-on-year, it has witnessed a decline of more than 11% against the dollar.

At the moment, the Japanese currency is trading at the levels that triggered foreign exchange intervention from Tokyo last year. This time, the Japanese government is also ready with its finger on the red button, constantly warning speculators about the possibility of intervention.

Fears of intervention are the main headwinds for the USD/JPY pair and severely limit its growth. However, many experts believe that after the two interventions last year, which cost Japan $43.06 billion, Tokyo will not be so reckless with its foreign reserves this time around.

Most analysts anticipate that Japanese authorities might intervene once the yen drops to the 150 mark. Meanwhile, JPMorgan economist Toru Sasaki has recently shifted the red line to the 155 mark in his forecast for the USD/JPY pair.

Considering experts' opinions, one might infer that the dollar bulls haven't reached their ceiling yet and will surely attempt a new high as soon as another significant trigger emerges.

In search of short-term opportunities, buyers will be closely monitoring today's US Department of Labor report. If the market sees a sharp decline in the number of initial jobless claims, as was the case last week, it will most likely boost demand for USD.

How long will the bullish trend last?

Until recently, many analysts were confident that the dollar would enter a multi-year downward trend this year, as the Federal Reserve begins to soften its monetary policy. However, a 7-week rally in the US currency, backed by strong US economic data, has forced experts to reassess their USD forecast.

According to a Reuters survey conducted in early September, the vast majority of strategists see a stronger greenback in the months ahead.

"We believe that the dollar will continue to strengthen and maintain its upward trend over the next three months," said Rabobank economist Jane Foley.

"We expect broad appreciation in USD over the next few months as the Fed maintains its hawkish stance and US Treasury yields increase," noted analyst Ashwin Murthy.

JPMorgan forecasts that the dollar will remain robust against most major currencies by the end of the year, with the USD/JPY pair showing the strongest dynamic during this period.

According to experts, by the end of the year, the dollar will strengthen against the yen to 152 and reach the level of 155 at the beginning of the next year.

An additional boost for USD/JPY will be the dovish stance of the Bank of Japan. JPMorgan is confident that the BOJ will maintain negative interest rates for quite some time.

"We believe that next year the yen will remain one of the weakest currencies," concluded bank representative Toru Sasaki, who had given the most accurate forecast for the major USD/JPY dynamics in the past quarter.