• USD/JPY advances toward 160.85, remaining close to its highest levels in nearly two years.
• The Fed signals that an additional rate hike remains possible this year despite holding rates unchanged.
• Intervention fears from Japanese authorities are limiting further gains in the US Dollar against the Japanese Yen.

USD/JPY trades around 160.85 on Thursday at the time of writing, up 0.12% on the day after reaching 160.95, its highest level since July 2024. The pair remains supported by the persistent divergence between US and Japanese monetary policy outlooks, although Japanese officials continue to warn against excessive weakness in the Japanese Yen (JPY).

The Federal Reserve (Fed) left its benchmark interest rate unchanged within the 3.5%-3.75% range on Wednesday, in line with market expectations. However, updated economic projections showed that roughly half of the Federal Open Market Committee (FOMC) members still expect at least one additional rate hike this year. During his first press conference as central bank chief, Fed Chair Kevin Warsh reaffirmed his commitment to restoring price stability, highlighting the resilience of the labor market and persistent underlying inflation pressures.

This more restrictive policy outlook continues to support the US Dollar (USD), even as safe-haven demand eases following the announcement of a preliminary memorandum of understanding between the United States (US) and Iran aimed at ending hostilities in the Middle East. According to Rabobank, improving geopolitical prospects and a potential full reopening of the Strait of Hormuz could reduce demand for defensive assets, but the impact of the Fed’s hawkish shift is currently outweighing those factors in the foreign exchange market.

Data released on Thursday also reinforced the view that the US economy remains resilient. Initial Jobless Claims fell to 226K in the week ending June 13 from a revised 230K previously, while Continuing Jobless Claims increased to 1.81M. These figures support expectations that the labor market remains strong enough for the Fed to maintain a restrictive policy bias.

On the Japanese side, authorities continue to closely monitor developments in the foreign exchange market. Chief Cabinet Secretary Minoru Kihara stated that Tokyo is ready to respond appropriately to currency moves if necessary. According to Deutsche Bank, the Japanese Yen is now trading near levels that previously triggered official intervention in 2024, helping to limit the most aggressive selling pressure on the JPY.

Despite intervention risks, the interest rate differential between the United States and Japan remains strongly supportive of the Greenback.