The USD/JPY pair began the new week on a positive note, with fresh buyers entering the market during the Asian session on Monday. The pair jumped to the 154.35 region amid some repositioning trade ahead of key central bank events scheduled for later in the week.
Despite the positive start, the upside potential for USD/JPY appears to be limited. This is due to a positive risk tone in the market, which has diminished demand for the safe-haven Japanese Yen. The risk-on impulse, as seen in the strong bullish sentiment surrounding global equity markets, has helped the USD/JPY pair gain some traction.
Traders may now opt to wait for the crucial policy decisions of the Bank of Japan (BoJ) and the Federal Reserve (Fed) on Wednesday. The BoJ is expected to potentially reduce bond buying and raise interest rates, while the markets have fully priced in the possibility of the Fed beginning a policy-easing cycle in September and implementing three interest rate cuts by the end of the year.
From a technical perspective, last week’s breakdown through the 100-day Simple Moving Average (SMA) signaled a bearish trend. However, a slightly oversold Relative Strength Index (RSI) on the daily chart prompted some short-covering. Despite this, further appreciation for the USD/JPY pair may be challenging given the divergent expectations regarding BoJ and Fed policies.
The USD/JPY pair is starting the week on a positive note but faces limited upside potential. The upcoming decisions of the BoJ and Fed will likely play a significant role in determining the pair’s future direction. Traders should exercise caution and closely monitor market developments in the coming days.