USD/JPY maintains gains near 140.50, just below 24-year highs

• USD/JPY receives fresh buying on Monday and approaches its 24-year high again.
• The general strength of the dollar and the divergence between the policies of the Fed and the BoJ remain supportive for the pair.
• Bulls are reticent amid thin trading volume due to US holiday.

The pair USD/JPY it attracts new buying on the first day of a new week and maintains its firm tone during the first half of the European session. The pair is currently around the 140.50-140.55 zone, just a few pips below the 24-year high reached on Friday.

The US dollar hits a new two-decade high and turns out to be a key factor acting as a tailwind for the USD/JPY pair. Despite the release of a mixed report on US employment, firm expectations that the Fed will continue with its aggressive policy of tightening they remain supportive of the strong underlying bullish sentiment surrounding the dollar.

In fact, current market prices suggest a higher probability of a 75 basis point Fed rate hike at the September meeting. By contrast, the Bank of Japan remains committed to its ultra-loose monetary policy. The resulting divergence between the Fed and the Bank of Japan continues to weigh on the Japanese yen and offers additional support to the USD/JPY pair.

Also, signs of stability in stock markets could further reduce demand for the yen, which is a safe haven, and support the prospects of a continuation of the upward trend of more than three weeks. However, investors appear hesitant amid relatively tight liquidity conditions due to the US Labor Day holiday and a slightly overbought RSI on the daily chart.

However, the fundamental background continues to lean strongly in favor of the bulls. This, in turn, suggests that any significant pullback could be viewed as a buying opportunity.

Technical levels to watch