- USD/JPY gains some positive traction on Monday and rises to a two-week high.
- Expectations of an aggressive rate hike from the Fed continue to boost the dollar and support the pair.
- The divergence between Fed and BoJ policies favors bulls and supports prospects for further gains.
The pair USD/JPY moves higher on the first day of a new week and hits new two-week highs, although it lacks a continuation. However, the pair maintains modest intraday gains around 145.50 and they remain close to the 24-year highs reached in September.
The purchase of US dollars continues unabated on the first day of a new week, which in turn is seen as a key factor offering support to the USD/JPY pair. In fact, the dollar index, which measures the behavior of the dollar against a basket of currencies, rises to a maximum of one and a half weeks amid expectations of more aggressive Fed monetary policy tightening.
Markets are pricing in a higher probability of occurrence the fourth consecutive rate hike of 75 basis points at the next FOMC meeting in November. These expectations were bolstered by Friday’s strong monthly US employment report, which pointed to resilience in the economy. This remains supportive of elevated US Treasury yields and underpins the dollar.
On the other hand, the Bank of Japan has lagged behind other major central banks in the process of normalizing its policy and remains committed to continuing its monetary easing. The resulting divergence between Fed and BoJ policies favors the pair’s bulls and supports the prospects for further short-term appreciation of USD/JPY.
Nevertheless, intervention fears prevent traders from opening new bullish positions and limit pair gains, At least for the moment. It is worth recalling that Japan’s finance minister, Shunichi Suzuki, said last week that the government is willing to intervene in the forex markets to avoid deeper losses in the JPY.
Market participants also seem reluctant to open aggressive positions and may prefer to stay on the sidelines ahead of this week’s key events. The minutes of the last FOMC meeting, held on September 20 and 21, will be published on Wednesday, followed by the latest figures for consumer CPI inflation in the US on Thursday.
Investors will be looking for clues on the Fed’s future rate hike path, which in turn will influence short-term USD price action and provide a further directional boost to the USD/JPY pair.
USD/JPY technical levels
Source: Fx Street
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