- A combination of factors is not helping USD/JPY capitalize on early gains after hitting a one-week high.
- Fears of Japanese government intervention extend JPY support and limit the pair’s upside.
- A softer tone around US bond yields weighs on the dollar and attracts sellers at higher levels.
The pair USD/JPY trims part of its modest intraday gains after hitting one-week highs at 145.30 and pull back quickly below the 145.00 level at the start of the European session on Monday.
Japan’s Finance Minister Shunichi Suzuki said on Monday that the government is willing to intervene in the foreign exchange markets to prevent deeper losses in the national currency. This, coupled with the prevailing cautious mood in the market, offers some support to the safe-haven Japanese yen and limits the USD/JPY pair’s upside.
Bass players are also inspired by the softer tone around US Treasury yields., which does not help the dollar to capitalize on its initial positive movement. This puts some pressure on the USD/JPY pair, although a combination of factors should help limit any significant decline, at least for now.
The wide divergence in the monetary policy stance adopted by the Bank of Japan and other central banks important could continue to weigh on the yen. It is worth mentioning that the Bank of Japan has lagged behind other major central banks in the process of policy normalization and remains committed to continuing its monetary easing.
Instead, the US central bank is expected to maintain its aggressive tightening policy to curb high inflation. Indeed, markets have been pricing in the possibility of another 75 basis point Fed rate hike in November. This, in turn, will likely act as a tailwind for US bond yields and the dollar.
The fundamental background suggests that the path of least resistance for USD/JPY is to the upside and any significant drop could be seen as a buying opportunity. That said, traders might prefer to wait for the release of major US macroeconomic data scheduled for the start of a new month, including the NFP report.
The week starts with the release of the US Manufacturing PMI, which will be released early in the American session today. This, along with US bond yields, will influence the price dynamics of the dollar. Aside from this, the overall market risk sentiment should give the USD/JPY pair a significant lift.
USD/JPY technical levels
Source: Fx Street
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