• A combination of factors pushed USD/JPY to a fresh 24-year high on Monday.
  • A dovish BoJ policy stance continued weighing heavily on the Japanese yen.
  • Relentless USD buying provided an additional lift and remained supportive.
  • The risk-off mood, sliding US bond yields held bulls from placing fresh bets.

The USD/JPY pair caught aggressive bids on the first day of a new week and surged to its highest level since September 1998, around the 137.75 region. Japan's ruling coalition scored a strong victory in Sunday's upper house election. The result suggested that the voting public remains behind the ultra-loose monetary policy adopted by the Bank of Japan. Adding to this, BoJ Governor Haruhiko Kuroda reiterated that the central bank remains ready to take additional monetary easing steps as necessary. This, in turn, was seen as a key factor that weighed heavily on the Japanese yen, which, along with the relentless US dollar buying, provided a goodish lift to the major.

In fact, the USD Index soared to a fresh two-decade high during the Asian session on Tuesday and continued drawing support from hawkish Fed expectations. The market seems convinced that the US central bank would stick to its faster policy tightening path to combat stubbornly high inflation. The bets were reaffirmed by the FOMC meeting minutes released last week, which indicated that another 50 or 75 bps rate hike is likely at the July meeting. Policymakers also emphasized the need to fight inflation even if it results in an economic slowdown. Apart from this, technical buying above the previous YTD peak, around the 137.00 mark, contributed to the USD/JPY pair's strong move up.

The prospects for a more aggressive move by major central banks to curb soaring inflation, along with the ongoing Russia-Ukraine war and a fresh COVID-19 outbreak in China, have been fueling recession fears. This, in turn, continued weighing on investors' sentiment, which was evident from a sea of red across the equity markets and underpinned traditional safe-haven assets. The flight to safety led to a sharp pullback in the US Treasury bond yields and resulted in the narrowing of the US-Japan rate differential. The combination of factors offered some support to the Japanese yen and held back bulls from placing fresh bets around the USD/JPY pair, at least for the time being.

Nevertheless, the Fed-BoJ policy divergence supports prospects for an extension of the recent bullish trajectory. Traders, however, might now prefer to wait for the latest US consumer inflation figures, due for release on Wednesday, before positioning for the next leg of a directional move. In the meantime, the US bond yields, the USD price dynamics and the broader market risk sentiment might provide some impetus to the USD/JPY pair amid absent relevant market-moving economic data.

Technical outlook

From a technical perspective, the overnight strong move up took along short-term trading stops placed near the 136.50-136.60 region. A subsequent move and acceptance above the 137.00 mark was seen as a fresh trigger for bullish traders. This, in turn, validates the near-term constructive outlook, though slightly overstretched oscillators warrant some caution. Nevertheless, the USD/JPY pair seems poised to surpass the 138.00 mark and aim to test the next relevant hurdle near the 138.35 region. The momentum could further get extended and lift spot prices to the 139.00 mark, representing an ascending trend-line resistance extending from early May.

On the flip side, the 137.00 round figure now seems to protect the immediate downside ahead of the 136.60-136.50 resistance breakpoint, now turned support. Any further pullback might still be seen as a buying opportunity and remain limited near the 136.00 mark. The latter should act as a strong base for the USD/JPY pair, which if broken decisively could trigger some long-unwinding trade. Spot prices could then accelerate the corrective fall towards the 135.00 psychological mark en-route the 134.80-134.75 horizontal support.

fxsorigina

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

AUD/USD: Bears are making their move

AUD/USD: Bears are making their move

Bears remain below the counter-trendline resistance which leaves the focus on the downside. AUD/USD bears could be about to move in for a run to 0.6800. The price is being rejected by the counter trendline resistance and is forking the makings of an M-formation in the process.

AUD/USD News

EURUSD returns 1.0200 as the market mood sours

EURUSD returns 1.0200 as the market mood sours

The EUR/USD pair is battling to hold above the 1.0200 mark, undermined by a souring market mood. The European energy crisis adds to the poor performance of the shared currency.

EUR/USD News

Gold aims to recapture $1,800 as investors trim US Inflation forecasts

Gold aims to recapture $1,800 as investors trim US Inflation forecasts

Gold price is displaying a volatility contraction after printing a fresh monthly high at around $1,800.00 on Tuesday. The precious metal witnessed a decent north-side move on Tuesday and later on turned sideways ahead of US CPI.

Gold News

Iran adopts crypto in foreign trade, debuts with $10 million import order

Iran adopts crypto in foreign trade, debuts with $10 million import order

In a watershed moment for crypto adoption, Iran registered its first official order for importing $10M worth of goods paid for in cryptocurrencies. A private Iranian news agency reported that the Ministry of Industry, Mine and Trade has plans to widely use cryptos in foreign trade.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Majors

Cryptocurrencies

Signatures