- USD/JPY caught aggressive bids on Monday and rallied to a fresh 24-year peak.
- The Fed-BoJ policy divergence remained supportive of the strong positive move.
- The risk-off mood offered some support to the safe-haven JPY and capped gains.
The USD/JPY pair now seems to have entered a bullish consolidation phase and was seen oscillating in a range around the 137.00 mark, just a few pips below a fresh 24-year peak touched earlier this Monday.
A strong election showing by Japan's ruling conservative coalition indicated no change to the loose monetary policy adopted by the Bank of Japan. Adding to this, BoJ Governor Haruhiko Kuroda reiterated on Monday that the central bank remains ready to take additional monetary easing steps as necessary. This, in turn, was seen as a key factor that undermined the Japanese yen and provided a goodish lift to the USD/JPY pair amid a fresh wave of the US dollar buying interest.
In fact, the USD Index inched back closer to a two-decade high touched on Friday and continued drawing support from expectations that the Fed would retain its aggressive policy tightening path. The bets were reaffirmed by FOMC minutes released last Wednesday, which indicated that another 50 or 75 bps rate hike is likely at the July meeting. Adding to this, the upbeat US monthly jobs report assisted the USD to catch fresh bids on Monday and acted as a tailwind for the USD/JPY pair.
That said, the prevalent risk-off environment - amid growing fears about a possible global recession - offered some support to the safe-haven Japanese yen. Apart from this, a softer tone surrounding the US Treasury bond yields held back bulls from placing fresh bets and kept a lid on any further gains for the USD/JPY pair, at least for the time being. Nevertheless, the Fed-BoJ monetary policy divergence supports prospects for an extension of the near-term appreciating move.
The market focus now shifts to the release of the latest US consumer inflation figures, due on Wednesday. This week's US economic docket also features the release of monthly Retail Sales data and Prelim Michigan Consumer Sentiment on Friday. This will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the USD/JPY pair. In the meantime, the broader risk sentiment would be looked upon for short-term opportunities.
Technical levels to watch
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