- USD/JPY gains strong positive traction on Tuesday and is supported by a combination of factors.
- Dovish expectations from the Fed and rising US bond yields continue to support the dollar and act as a tailwind.
- The divergence in policy from the Fed and the Bank of Japan weighs on the yen, although recession fears could cap deeper losses.
- In addition, investors will prefer to wait for the release of the FOMC meeting minutes on Wednesday.
The pair USD/JPY it is supported by its intraday positive move and rises to the 134.65-134.70 area, ie a four-day high during the early American session.
The US dollar continues its recovery from a one-month low reached after the release of the softer US CPI and gains traction for the third day in a row on Tuesday. The momentum pushes the dollar to a new monthly high and acts as a tailwind for the USD/JPY pair.
Recent aggressive comments from several Fed officials suggest that the US central bank will maintain its tightening policy. This, coupled with a rally in US Treasury yields, continues to support the dollar and continues to support the strong move higher in the USD/JPY pair.
In addition, the wide divergence between the monetary policy of the Federal Reserve and the Bank of Japan is driving flows away from the Japanese yen and providing an additional boost to spot prices. It is worth remembering that the Bank of Japan has repeatedly said that it will maintain its ultra-loose monetary policy.
That said, the cautious mood prevailing in the markets – amid growing concerns about a global economic slowdown – lends some support to the safe-haven yen. This could be the only factor that could stop the bulls from making new bets and limit the gains of the USD/JPY pair.
Traders may also prefer to stay on the sidelines ahead of the FOMC minutes due on Wednesday. Investors would be looking for clues on the possibility of a 75 basis point rate hike in September, which would weigh on the dollar and give the USD/JPY pair further directional momentum.
Technical levels
Source: Fx Street
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