- USD/JPY gains traction for the fourth day in a row and jumps to a three-week high.
- Aggressive expectations from the Fed and rising US bond yields underpin the dollar and continue to offer support.
- The divergence between the Fed and BoJ policies supports the prospects of an extension of the strong upward movement.
The pair USD/JPY It builds on the bullish momentum of the last few hours through the 50-day SMA resistance and gains traction for the fourth day in a row on Friday. The upward trajectory continues during the first part of the European session and takes prices to a three-week high at 136.76, on the way to the 137.00 zone.
The US dollar hits a one-month high on the last day of the week, which turns out to be a key factor driving the USD/JPY pair. Despite signs of easing of inflationary pressures in the US, recent hawkish comments from several Fed officials suggest that the central bank will maintain its tightening policy. A further rise in Treasury bond yields reaffirms the Fed’s expectations and continues to act as a tailwind for the dollar.
In fact, the benchmark 10-year US government bond yield again approached the 3% threshold. By contrast, Japanese government bond yields are holding steady amid expectations that the Bank of Japan will maintain its ultra-easy monetary policy despite rising inflation. Data released on Friday showed Japan’s core CPI rose 2.4% year-on-year in July, the highest level since December 2014, and remains above the BoJ’s 2% target for the fourth consecutive month.
The divergence between the monetary policy of the Fed and the Bank of Japan continues to weigh on the Japanese yen and provides an additional boost to the USD/JPY pair.. Aside from this, the ongoing positive move could be attributed to some technical buying above the 50 DMA barrier around the 135.50 area, which coincided with the previous monthly high. That said, the generally weaker tone in equity markets could support the safe-haven yen and cap earnings from major companies.
However the fundamental background and technical setup favor bulls, supporting the prospects for an extension of the ongoing appreciation movement. No major US economic data will be released on Friday. Therefore, US bond yields will influence the price dynamics of the dollar and provide some momentum to the USD/JPY pair. In addition to this, the broader risk sentiment will also be seen for short-term trading opportunities.
USD/JPY Technical Levels
Source: Fx Street
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