- USD / JPY gained positive traction for the second consecutive session on Monday.
- Risk appetite undermined the safe-haven JPY and continued to act as support.
- A modest pullback in the USD from the two-week highs limited the pair’s gains.
The pair USD/JPY it maintained its offered tone during the middle of the European session, although it has lost a few pips from the highs of a week and a half touched earlier this Monday. The pair was last seen hovering around the 114.20-25 region, still up almost 0.25% on the day.
Japanese Prime Minister Fumio Kishida’s Liberal Democratic Party won more seats than expected in the general elections and raised expectations for additional measures to stimulate the economy. This, in turn, boosted investor sentiment, which was evidenced by a generally positive tone in equity markets. The risk appetite boost undermined the safe-haven Japanese yen and pushed the USD / JPY higher for the second consecutive session on Monday.
However, a modest pullback in the US dollar from the two-and-a-half week highs failed to impress bullish traders or provided any additional boost to the USD / JPY pair. Positive intraday movement faltered just before 114.50, although any significant pullback is likely to remain limited amid a good rally in US Treasury yields. Investors might also prefer to wait on the sidelines before the FOMC critical monetary policy meeting this week.
Markets appear to be convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. The speculation was fueled by Friday’s core US PCE price index, the Fed’s preferred inflation gauge, which held near 30-year highs and indicated that consumer cost pressures are taking hold. This was seen as a key factor behind the last leg in US bond yields, which could act as a tailwind for the USD.
The Fed is expected to announce its decision on Wednesday and influence USD price dynamics. Apart from this, Friday’s release of the closely monitored monthly jobs report (NFP) will play a key role in determining the short-term trajectory for the USD / JPY pair. Meanwhile, traders on Monday will be guided by the release of the US ISM Manufacturing PMI and broader market risk sentiment to seize some short-term opportunities around the pair.
Technical levels
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