- USD/JPY regains positive traction and reverses some of Friday’s sharp losses.
- The BoJ’s dovish stance and improving risk sentiment weigh on the safe-haven JPY.
- Expectations of an aggressive Fed rate hike underpin the USD and offer additional support.
- Investors are now turning their attention to the US ISM to gain some momentum, although the focus remains on the FOMC.
The pair USD/JPY moves higher at the start of the European session on Wednesday, holding firm above the 130.00 level. At time of writing, the pa is trading at 130.12, up 0.26% on the day.
A combination of factors helped the USD/JPY pair attract fresh buying on the first day of a new week and reversed some of Friday’s retracement decline. Signs of stability in stock markets weigh on the safe-haven Japanese yen, which is further affected by a more dovish stance taken by the Bank of Japan. It is worth remembering that last week the Japanese central bank remained unchanged on its ultra-loose policy setting and promised daily trading to defend his “near-zero” target for 10-year bond yields.
Nevertheless, the market’s conviction that the Fed would tighten monetary policy at a faster pace to combat high inflation continued to support high yields on US Treasury bonds. This has resulted in the widening of the Japanese-U.S. government bond yield spread, which was seen as another factor pulling money flows away from the JPY. This, along with appearance of new purchases around the US dollar, offers additional support to the USD/JPY pair. However, the bulls are refraining from opening new aggressive positions ahead of this week’s key event.
The investors they might prefer to wait for the outcome of the FOMC’s two-day monetary policy meetingwhich starts this Tuesday. The Fed will announce its decision on Wednesday and widely expected to raise interest rates by 50 basis points. Investors will also take cues from major US macroeconomic releases scheduled for the start of a new month, including the monthly jobs report, popularly known as the NFP, on Friday. Meanwhile, the US ISM Manufacturing PMI could provide some lift to the USD/JPY pair later in the American session today.
USD/JPY technical levels
Source: Fx Street
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