• USD/JPY regains some positive traction on Monday and snaps a three-day losing streak.
• A modest bounce in the US bond yields helps revive the USD demand and lends support.
• The lack of strong follow-through buying warrants caution for aggressive bullish traders.

The USD/JPY pair attracts some dip-buying on the first day of a new week and for now, seems to have stalled a three-day-old corrective decline from the 151.70 area, or its highest level since October 2022 touched last Tuesday. Spot prices currently trade just above the mid-149.00s, up nearly 0.15% for the day, and draw support from a modest US Dollar (USD) uptick, though lack bullish conviction.

Rebounding US Treasury bond yields assist the USD Index (DXY), which tracks the Greenback against a basket of currencies, to recover a part of Friday’s post-US jobs data slump to a six-week low. Apart from this, the Bank of Japan’s dovish stance, along with the prevalent risk-on environment, is seen undermining the safe-haven Japanese Yen (JPY) and acting as a tailwind for the USD/JPY pair.

In fact, The BoJ’s minor change to its yield curve control (YCC) policy pointed to a slow move towards exiting the decade-long accommodative monetary policy settings. Adding to this, BoJ Governor Kazuo Ueda noted this Monday that there is uncertainty on whether Japan will see a positive cycle of wage and inflation, as we predict and reiterated to patiently maintain policy easing to support economic activity.

This marks a big divergence in comparison to the Federal Reserve’s (Fed) relatively hawkish outlook, leaving the door open for additional rate hikes in the wake of the US economic resilience. Investors, however, seem convinced that the US central bank will maintain the status quo in December and the bets were reaffirmed by softer-than-expected US monthly employment details released on Friday.

Apart from this, speculations that Japanese authorities will intervene in the FX market, to combat a sustained depreciation in the domestic currency, further contribute to capping the upside for the USD/JPY pair. This, in turn, warrants caution for bullish traders and before positioning for any further intraday appreciating move in the absence of any relevant marking moving economic releases from the US.

Technical levels to watch

USD/JPY