- USD/JPY attracts some buying on Monday amid declining safe-haven demand.
- Falling US bond yields keep USD bulls on the defensive and limit the pair’s upside.
- The policy divergence between the Fed and the Bank of Japan supports the prospects for further gains in the short term.
The pair USD/JPY it has risen close to 60 pips at the start of the European session on Monday and has again approached the upper end of its daily range, around 129.50. At time of writing, the pair is holding steady around 129.30, up 0.10% on the day.
On Monday, the pair attracted some buying near the 128.70 area and turned positive for the second day in a rowwith the bulls trying to take advantage of last week’s nice bounce from 127.50. Signs of stability in financial markets weighed on the safe-haven Japanese yen and acted as a tailwind for the USD/JPY pair. However, a combination of factors prevented the bulls from opening aggressive positions and capped the pair.
Investors seem concerned about weakening global growth, given the prospect of more aggressive action by major central banks, the war in Ukraine and China’s zero-covid policy. Fears have been fueled by surprisingly weak Chinese macroeconomic data. This, coupled with geopolitical tensions, extended some support to traditional safe-haven assets. This, in turn, pushed benchmark 10-year yields back from the recent high of 3.20%, keeping US dollar bulls on the defensive and limiting significant gains for the USD/JPY pair.
However, the fundamental backdrop supports the prospects for a resumption of the recent bull run amid the wide divergence in the monetary policy stance adopted by the Fed and the Bank of Japan. Market participants are now awaiting the release of the New York Empire State Manufacturing PMI for further momentum later in the American session. This coupled with US bond yields and broader risk sentiment should allow investors to take advantage of some short-term opportunities around the USD/JPY pair.
USD/JPY technical levels
Source: Fx Street
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