As the European session unfolds on Monday, the Japanese Yen (JPY) remains under significant pressure, hovering near a multi-decade low of approximately 154.00 against the US Dollar (USD). The Bank of Japan‘s (BoJ) persistently dovish stance, signaling a deliberate pace in terms of policy normalization, continues to erode confidence in the JPY. Despite recent warnings from Japanese authorities about potential market intervention to bolster the domestic currency, bullish sentiment largely disregards such remarks.
Adding to the downward pressure on the JPY is a subdued risk sentiment, exacerbated by escalating tensions in the Middle East. Meanwhile, the US Dollar (USD) consolidates recent gains, reaching its highest level since November, fueled by expectations that the Federal Reserve (Fed) will postpone interest rate cuts. This expectation, coupled with the significant interest rate differential between the US and Japan, further bolsters the USD/JPY pair.
In other market developments, Iran’s retaliation against Israel, following a suspected attack on its consulate in Syria, contributes to risk aversion, lending support to the safe-haven appeal of the JPY.
Concerns about persistent inflation, as evidenced by recent US data releases, delay expectations for the Fed’s interest rate adjustment, supporting elevated US Treasury bond yields and reinforcing USD strength.
With the BoJ and Fed maintaining divergent policy outlooks, the path of least resistance for the USD/JPY pair remains upward, fostering momentum from last week’s breakout.
Looking ahead, market participants await US Retail Sales figures and the Empire State Manufacturing Index, along with commentary from Fed officials, which are poised to influence USD demand and potentially provide further direction to the currency pair.
From a technical standpoint, the USD/JPY pair retains bullish control near the 154.00 mark, despite overbought conditions on the daily chart. While near-term consolidation may be prudent, the pair appears poised to extend its uptrend, targeting a reclamation of the 154.00 round figure.
On the downside, a corrective decline below 153.00 could find support near Friday’s swing low around the 152.60 region. However, a decisive break below this level may prompt further selling pressure, potentially pushing the pair towards 152.00 and 151.40 support levels. A breach of the latter could signal a shift in sentiment towards bearishness.
