USD/JPY sticks to strong intraday gains, remains below 145.00/YTD top set on Friday

The USD/JPY pair regains strong positive traction on the first day of a new week and reverses a major part of Friday's pullback from its highest level since November 2022. The pair builds on its steady intraday ascent and climbs to a fresh daily high during the early European session, albeit remains below the 145.00 psychological mark.

The Japanese Yen (JPY) continues to be undermined by a big divergence in the monetary policy stance adopted by the Bank of Japan (BoJ) and other major central banks, including the Federal Reserve (Fed). This, in turn, is seen as a key factor acting as a tailwind for the USD/JPY pair. The markets seem convinced that BoJ's negative interest-rate policy will remain in place at least until next year. Moreover, BoJ Governor Kazuo Ueda recently ruled out the possibility of any change in ultra-loose policy settings and signalled no immediate plans to alter the yield curve control measures.

In contrast, Fed Chair Jerome Powell reiterated last week that two more rate increases are likely by the end of this year. Adding to this, the fact that the US PCE Price Index remains well above the 2% target supports prospects for further policy tightening. In fact, the markets are currently pricing in a nearly 85% chance of a 25 bps lift-off at the upcoming FOMC meeting on July 25-26. This remains supportive of elevated US Treasury bond yields, which helps revive the US Dollar (USD) demand and turns out to be another factor pushing the USD/JPY pair hgher on Monday.

That said, speculations about an eventual intervention by Japanese authorities to support the weakened domestic currency seem to hold back traders from placing aggressive bearish bets around the JPY. Market participants also seem reluctant and might prefer to wait on the sidelines ahead of this week's release of the FOMC meeting minutes. Apart from this, important US macro data scheduled at the beginning of a new month, starting with the ISM Manufacturing PMI on Monday, should influence the USD and provide a fresh directional impetus to the USD/JPY pair.

Hence, it will be prudent to wait for some follow-through buying and acceptance above the 145.00 mark before positioning for an extension of the recent strong uptrend trajectory witnessed over the past month or so. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the USD/JPY pair is to the upside. Hence, any meaningful corrective decline might continue to attract fresh buyers and is more likely to remain limited, at least for the time being.

Technical levels to watch