- USD/JPY sees a modest intraday pullback from near two-decade highs.
- The recent pullback in US bond yields weighs on the dollar and puts some pressure on the pair.
- The divergence between Fed and Bank of Japan monetary policy should limit losses and warrants caution on the bears.
The pair USD/JPY has attracted some sellers near the 135.45 area on Monday and is back more than 90 pips from near a 24-year high hit last week. The pair has fallen to a daily low around 134.50 during the early European session and has given back a part of Friday’s strong gains, inspired by the Bank of Japan.
the recent decline in US Treasury bond yields. it did not help the US dollar to take advantage of the previous day’s rally and prevented the bulls from opening new positions around the USD/JPY pair. Apart from this, the intraday decline lacked an obvious fundamental catalyst and is more likely to remain limited amid the widening Japan-US interest rate spread.
On Friday, the Bank of Japan (BoJ) decided to keep its ultra-loose monetary policy unchanged and reiterated its guidance to keep borrowing costs at “current or lower” levels. The BoJ also pledged to guide the 10-year yield towards 0%. In contrast, last week The Federal Reserve carried out the biggest hike since 1994 and indicated a faster monetary policy tightening path to control rising inflation.
Furthermore, the so-called dot plot of the Federal Reserve showed that the year-end median projection for the fed funds rate rose to 3.4% from the 1.9% March estimate and to 3.8% in 2023. This should act as a tailwind for US bond yields and favors dollar bulls, warranting caution before positioning for deeper declines amid lighter trading volumes due to a US holiday
That being said, St. Louis Fed President James Bullard’s scheduled speech could influence dollar price dynamics and provide some momentum later in the American session. However, the fundamental backdrop supports the prospects for some buying around the USD/JPY pair.
USD/JPY technical levels
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.
