- USD/JPY is oscillating in a tight range around the 135.00 level on Tuesday.
- Recession fears and US-China tensions benefit the safe-haven JPY and appear to cap the pair’s upside.
- Monetary policy divergence between the Fed and the BoJ benefits the pair ahead of Wednesday’s US CPI report.
The pair USD/JPY spreads its consolidation movement sideways during the first half of Tuesday’s European session and remains stuck in a tight range near the 135.00 level.
The concern about a global economic downturn, coupled with US-China tensions over Taiwan, continues to lend some support to the safe-haven Japanese yen. The flight to safety is reinforced by the current decline in US Treasury yields. This, in turn, narrows the rate differential between the US and Japan and further benefits the yen. Apart from this, a modest weakness in the US dollar is acting as a headwind for the USD/JPY pair.
Nevertheless, the fall remains supported amid the great divergence in the orientation of the monetary policy adopted by the Bank of Japan and the Federal Reserve. In fact, the BoJ has repeatedly reiterated that it will maintain its ultra-loose policy and its commitment to keep the 10-year Japanese government bond yield around 0%. By contrast, the US central bank is expected to maintain its aggressive tightening policy.
The successful monthly US jobs report eased fears that the economy was in recession and revived expectations for a further Fed rate hike at the September policy meeting. Also, Fed Governor Michelle Bowman said on Saturday that the US central bank should consider more hikes of 75 basis points at upcoming meetings to reduce inflation. Fed expectations help limit dollar losses and support USD/JPY.
Investors also seem reluctant to open aggressive positions and they prefer to wait for the latest US CPI consumer inflation figures, due for release on Wednesday. The US CPI will give clues about the outlook for the Fed’s monetary policy and will be key to influencing the short-term price dynamics of the dollar. This, in turn, should help investors determine the next directional move for the USD/JPY pair.
Meanwhile, the dollar remains at the mercy of US bond yields in the absence of market-relevant economic releases on Tuesday. Apart from this, the risk sentiment in the market in general could create some short-term opportunities around the USD/JPY pair.
USD/JPY technical levels
Source: Fx Street
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