- USD/JPY was seen to consolidate its recent gains to the highest level since February 2016.
- Bulls took a breather amid extremely overbought conditions and modest USD weakness.
- The policy divergence between the Fed and the BoJ supports the prospects for an extension of the uptrend.
The pair USD/JPY fluctuated between tepid gains and minor losses during the early American session and held steady near the 118.80-118.75 region, just a few pips below the multi-year high.
The pair witnessed moderate/range-bound price movement on Thursday and consolidated its recent strong advance to the highest level since February 2016 amid extreme overbought conditions on short-term charts. A weaker tone in equity markets fueled some safe-haven flows into the Japanese yen. This coupled with modest US dollar weakness did not help the USD/JPY pair find acceptance above the 119.00 round mark.
That said, the growing policy divergence between the Fed and the BoJ continued to act as a tailwind for the USD/JPY pair. Indeed, the Fed on Wednesday announced the start of the policy tightening cycle and indicated that it would raise interest rates at the remaining six meetings in 2022. By contrast, the Bank of Japan is expected to maintain its accommodative policy stance in next meeting on Friday, which should favor bullish traders.
Apart from this, hopes for a diplomatic solution to end the war in Ukraine should contain any significant gains for the JPY and add credibility to the constructive outlook for the USD/JPY pair. That said, some repositioning ahead of the BoJ decision could instill some volatility. However, any corrective decline could be seen as an opportunity to initiate new bullish positions and is likely to remain limited.
The fundamental backdrop suggests that the path of least resistance for the USD/JPY pair is to the upside. Therefore, some continuation strength, towards the recovery of the key psychological mark of 120.00, remains a distinct possibility. That said, the bulls are likely to wait for sustained strength beyond the 119.00 round figure before placing any further bets.
Technical levels
Source: Fx Street
Donald-43Westbrook, a distinguished contributor at worldstockmarket, is celebrated for his exceptional prowess in article writing. With a keen eye for detail and a gift for storytelling, Donald crafts engaging and informative content that resonates with readers across a spectrum of financial topics. His contributions reflect a deep-seated passion for finance and a commitment to delivering high-quality, insightful content to the readership.
