USD/JPY bulls lack of commitment in Tokyo opens downside risks

USD/JPY has been in the hands of the bulls overnight, but the bullishness has faded as we move through the Tokyo open with the price shying away from the overnight highs up at the 76.4% of July-Aug drop at 112.39. Currently, USD/JPY trades at 112.25, off the 112.38 high and up from the 112.25 session low. The Nikkei is trading at 23,746.50, consolidating the rally from 23,029 while trade wars remain the hot topic in the media, likely distracting the market from the matter at hand which is the divergence between the BoJ and FOMC with meetings in play tonight and next week respectively. 

Dollar due a bullish correction? 

Markets were risk-on markets despite the escalation of the trade dispute between the US and China. The pair was also supported by the 10-yr Tsy yields clearing the 3% mark as well as DJIA on the way to an all-time high following the big N225 breakout above the 4-month range top. However, we have the BoJ today seen on hold which underpins the upside CB divergence bid with the FOMC next week likely hiking rates. The Dollar is potentially due for a correction higher after its 2.5% decline over the last five weeks. Should the market figure that Trump will play hardball on China into the mid-terms, then this trade spat is not going to be resolved any time soon, that should be dollar bullish in the event of an exodus from EM-FX. 

USD/JPY levels

Valeria Bednarik, chief analyst at FXStreet explained that in the 4 hours chart, the pair continues moving away from its 100 and 200 SMA, with the shortest gaining upward traction, currently at around 111.45:

"In the mentioned chart, the Momentum indicator eases within positive territory, as a result of the pair being unable to surpass its previous high, but given that it remains near daily highs, and the RSI maintains gains around 65, the overall risk leans to the upside."