USD/JPY maintains strong intraday gains below 145.00/yearly high set on Friday

• USD/JPY starts the new week in the positive and reverses Friday’s slide.
• The divergence between Fed and BoJ monetary policies continues to provide some support amid further USD buying.
• Intervention fears could cap the rise ahead of this week’s major US releases.

The pair USD/JPY regains strong positive traction on the first day of a new week and reverses much of Friday’s pullback from its highest level since November 2022. The pair continues its intraday climb and hits a new daily high during the early hours of the session European, though remains below the psychological level of 145.00.

The Japanese Yen (JPY) continues to be undermined by the wide divergence in the monetary policy stance adopted by the Bank of Japan (BoJ) and other major central banks, including the Federal Reserve (Fed). This, in turn, is seen as a key factor acting as a tailwind for the USD/JPY pair. Markets seem convinced that the BoJ’s negative interest rate policy will continue at least until next year. Furthermore, the Governor of the BoJ, Kazuo Ueda recently ruled out the possibility of any changes to the ultra-loose policy setup and noted that there are no immediate plans to alter the yield curve control measures.

By contrast, the Fed Chairman, Jerome Powell reiterated last week that two more rate hikes are likely before the end of this year.. In addition, the fact that the US Personal Consumption Expenditure Price Index remains well above the 2% target supports the prospects for further monetary policy tightening. In fact, markets are currently pricing the possibility of a 25 basis point hike at the next FOMC meeting on July 25-26 at almost 85%. This remains supportive of elevated US Treasury yields, helping revive demand for the US Dollar (USD) and turns out to be another factor pushing the USD/JPY pair higher on Monday.

Having said that, Speculations about a possible intervention by the Japanese authorities to support the weakening national currency seem to discourage traders from opening aggressive bearish positions around the Yen. Market participants also seem reluctant and may prefer to wait on the sidelines before the release of the FOMC meeting minutes this week. Apart from this, important US macro data scheduled for the beginning of a new month, beginning with Monday’s ISM Manufacturing PMI, should weigh on the USD and provide further directional momentum to the USD/JPY pair.

Therefore, it would be prudent to wait for continuation buying and the pair to break above the 145.00 level before positioning for an extension of the strong bullish run seen over the past month. However, the fundamental background suggests that the path of least resistance for USD/JPY is to the upside. Therefore, any significant corrective decline could continue to attract new buyers and is more likely to remain limitedAt least for the moment.

USD/JPY technical levels to watch