USD/JPY with a slight positive bias above 149.50, but lacks continuation

• USD/JPY regains some positive traction on Monday and breaks a three-day losing streak.
• A slight uptick in US bond yields helps revive demand for the USD, lending support to the pair.
• The lack of strong continuation of buying justifies the caution of aggressive bulls.

The USD/JPY pair attracts some buying at lower levels on the first day of a new week and, for now, appears to have halted a three-day corrective decline from the 151.70 area, its highest level since October 2022 touched on last Tuesday. The pair is trading just above 149.50, up almost 0.15% on the day, and is supported by a modest rally in the US Dollar, although it lacks bullish conviction.

Rebound in US Treasury yields helps the DXY Dollar Index, which measures the dollar’s strength against a basket of currencies, recover some of Friday’s decline following US jobs data .US, to six-week lows. Apart from this, the dovish stance of the Bank of Japan, coupled with the prevailing risk-on sentiment, weighs on the safe-haven Japanese Yen (JPY) and acts as a tailwind for the USD/JPY pair.

In fact, the small change introduced by the Bank of Japan in its yield curve control policy pointed to slow progress towards exiting the accommodative monetary policy applied for a decade. Additionally, BoJ Governor Kazuo Ueda noted on Monday that there is uncertainty over whether Japan will see a positive wage and inflation cycle, as we anticipate, and reiterated that he will patiently maintain policy easing to support economic activity.

This marks a big divergence from the relatively hawkish outlook of the Federal Reserve (Fed), which leaves the door open to further rate hikes following the US economic recovery. Investors, however, seem convinced that the US central bank will maintain the status quo in December. These expectations were reaffirmed by softer-than-expected monthly US employment data released on Friday.

Apart from this, speculation that the Japanese authorities will intervene in the currency market, to combat a sustained depreciation of the national currency, further contributes to limiting the rise of the USD/JPY pair. This, in turn, justifies bulls’ caution before positioning for any further intraday appreciation moves in the absence of any relevant US economic releases.

Technical levels to monitor