USD/JPY fails ahead of 111.00 mark, drops back closer to session lows

   •  Follow-through USD upsurge was seen supporting the early up-move.
   •  JPY further weighed down by BoJ’s weaker view on inflation/status quo.
   •  Profit-taking kicks in amid a modest revival in safe-haven demand.

The USD/JPY pair stalled its bullish momentum ahead of the 111.00 handle and has now retreated towards the lower end of its daily trading range. 

The pair initially built on overnight sharp rebound from sub-110.00 level and continued gaining traction on the last trading day of the week following a dovish BoJ assessment on inflation, signalling that policymakers are in no hurry to scale back the stimulus.

In its June monetary policy meeting, the Bank of Japan opted to leave the key interest rate steady at -0.1% and pledged the yield target for 10-year Japanese government bonds around 0%.

Adding to this, a follow-through greenback buying interest, with the key US Dollar Index hitting its best level since July 2017, remained supportive of the ongoing bullish momentum to over three-week tops. 

Against the backdrop of Wednesday's hawkish Fed rate hike, Thursday's dovish ECB statement and BoJ's weaker view on inflation outlook reinforced monetary policy divergence between the US and other major central banks and is turning out to be positive for the buck.

Meanwhile, escalating US-China trade tensions largely offset a positive opening across European bourses, and was seen lending some support to the Japanese Yen’s safe-haven appeal. Traders opted to take some profits off the table and seemed to be the only factors behind the pair’s retracement of around 40-pips from session high.

Today’s second-tier US economic data - Empire State Manufacturing Index, Industrial Production, Capacity Utilization and Prelim UoM Consumer Sentiment, is unlikely to prove to be a game-changer but will still be looked upon to grab some short-term trading opportunities. 

Technical outlook

Valeria Bednarik, FXStreet's own American Chief Analyst writes: “The USD/JPY pair 4 hours´ chart shows that it holds around its weekly highs, resulting in a limited upward momentum in technical indicators that anyway hold within bullish territory and with positive slopes. In the same chart, the pair is well above still directionless moving averages, also above the 61.8% retracement of its latest decline, and poised to extend its rally up to the 111.40 region on a break above 111.00. The downside is now being limited by a Fibonacci support at 110.15.”