- USD/JPY finds buying near the 123.45 area on Thursday, though it lacks a continuation.
- Risk aversion benefits the safe-haven JPY and caps the pair’s gains amid a pullback in US bond yields.
- The divergence in monetary policies between the Fed and BoJ favors the pair’s bulls and supports the prospects for additional gains.
The pair USD/JPY has recovered from an initial drop to the 123.45 region and trades practically unchanged on the day, capped below the 124.00 level at the start of the European session on Thursday.
Having struggled to find acceptance above the 124.00 round level, the USD/JPY pair has seen some selling on Thursday and has come under pressure from a combination of factors. Cautious market sentiment fueled some safe-haven money flows into the Japanese yen and put some downward pressure on USD/JPY prices amid a softer tone around the US dollar. The bears took further cues from a pullback in US Treasury yields, which capped the recent rally in the DXY dollar index to a near two-year high.
That said, a combination of factors offered some support and helped the USD/JPY pair attract some buying near the 123.45 region. Asahi Noguchi, a member of the board of directors of the Bank of Japan, said that the central bank must maintain its ultra monetary policy flexible, even as rising commodity prices are expected to push up inflation further. On the other hand, Minutes from the FOMC’s March 15-16 monetary policy meeting released on Wednesday showed policymakers were willing to raise interest rates by 50 basis points. in the next meetings.
The minutes also showed general agreement on reducing the central bank’s huge balance sheet at a maximum rate of $95 billion a month to tighten financial conditions. The resulting policy divergence between the Fed and the BoJ should support the prospects for a further near-term move higher in the USD/JPY pair.. Even from a technical perspective, the recent rise seen in the last week has been along an ascending channel, which points to a well-established short-term uptrend.
A sustained strength above the 124.00 level will reaffirm the constructive outlook and allow the USD/JPY pair to extend its gains recorded in the last four trading sessions. The bulls could aim to re-conquer the psychological level of 125.00, the highest level since August 2015 touched in March. Investors are now awaiting the release of US initial jobless claims data. This, along with US bond yields, will weigh on the USD and could lead to some significant trading opportunities.
Technical levels to observe
Source: Fx Street
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