- USD/JPY oscillates in a tight trading range below all-time highs hit this Monday.
- The pullback in US bond yields triggers some dollar selling and acts as a headwind for the pair.
- Divergence between Fed and Bank of Japan policies, risk appetite boost undermines JPY and offers support.
The pair USD/JPY It consolidates its recent strong gains to the highest level since 1990 and ranges below 149.00 during the early American session.
The US dollar struggles to ride Friday’s sharp rally and finds itself in fresh supply on the first day of a new week, which, in turn, looks like a headwind for the USD/JPY pair. The dollar’s decline could be attributed to a modest pullback in US Treasury yields. This translates into a narrowing of the US-Japan rate spread, extending some support to the Japanese yen and helping to further limit higher rates.
However, the downtrend remains dampened by risk momentum, which is undermining the yen’s safe haven. Market sentiment is buoyed by the new UK government’s spin on planned tax cuts. Aside from this, the prospect of more aggressive Fed policy tightening should help limit the decline in US and dollar yields. This, in turn, should continue to give the USD/JPY pair some support.
In fact, markets have priced in a near 100% chance of another 75 basis point Fed rate hike for the fourth consecutive meeting in November. Bets were bolstered by last week’s stronger US CPI report and recent hawkish comments from several Fed officials. By contrast, the Bank of Japan remains betting on a continuation of its monetary easing, which marks a large divergence from a more aggressive Fed.
This, in turn, adds credence to the positive short-term outlook for the USD/JPY pair and suggests that the path of least resistance for prices in the pair is to the upside. That said, speculation that the Japanese authorities could intervene in the markets to stem further weakness in the local currency warrants caution by bullish traders.
Technical levels to watch
Source: Fx Street
With 6 years of experience, I bring to the table captivating and informative writing in the world news category. My expertise covers a range of industries, including tourism, technology, forex and stocks. From brief social media posts to in-depth articles, I am dedicated to creating compelling content for various platforms.
