The USD/JPY pair has managed to gain some positive traction on Monday, but it is struggling to capitalize on the move. Despite reaching the 148.00 mark in the Asian session, the pair has dropped to a fresh daily low in the recent hours, trading below mid-147.00s. This vulnerability indicates a potential retracement slide from a two-week top.
The market’s positive risk tone, driven by reduced fears of a recession in the US, has undermined the safe-haven Japanese Yen. This has provided some support to the USD/JPY pair, accompanied by a modest uptick in the US Dollar. However, rising geopolitical tensions in the Middle East are dampening market optimism and affecting the currency pair’s performance.
One of the key factors limiting further gains for the USD/JPY pair is the divergent policy expectations between the Bank of Japan (BoJ) and the Federal Reserve (Fed). While Japan’s stronger second-quarter Gross Domestic Product (GDP) data might prompt the BoJ to consider raising interest rates, the Fed is likely to initiate a policy-easing cycle in September. This disparity in monetary policies is keeping a lid on any significant upside potential for the currency pair.
Investors are closely monitoring the Fed’s rate-cut path before making any major moves in the USD/JPY pair. With the focus shifting to the upcoming FOMC meeting minutes on Wednesday and Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium on Friday, market participants are expected to wait for more cues before determining the next direction of the pair. The uncertainty surrounding the Fed’s monetary policy decisions has added a layer of complexity to the currency market dynamics.
The USD/JPY pair’s performance is being heavily influenced by the divergent BoJ-Fed policy expectations, market sentiment, and geopolitical developments. While the current risk-on mood and positive outlook for the US economy are providing some support to the pair, uncertainties surrounding monetary policies and geopolitical tensions are acting as limiting factors. As investors await further insights from the upcoming Fed events, the USD/JPY pair is likely to continue facing challenges in its trading trajectory.