On Monday, the USD/JPY strengthened for the second consecutive session, extending its recent gains. The risk-on sentiment weighed on the relatively secure JPY, which remained solid despite the pressure. A small USD drop from more than two-week highs restricted gains for the major currency.
USD/JPY CHART Source: Tradingview.com
Through the middle of the European day, the USD/JPY pair kept its bullish stance, although with a small retracement from one and a half-week high reached previously this Monday. The pair was lingering around the 114.20-25 area at the time of writing, having gained nearly 0.25 percent on the day.
Outline Of The Fundamentals
The Liberal Democratic Union, led by Japanese PM Fumio Kishida, gained more seats than projected in the country’s national election, raising hopes for additional stimulus measures to be implemented. This, in turn, bolstered investor confidence, as evidenced by the generally upbeat tone that pervaded the equities markets during the period under review. With the risk-on trend continuing, the relatively secure Japanese Yen was damaged, causing the USD/JPY pair to rise for the second session in a row on Monday.
A minor decline in the value of the US Dollar, compared to two-and-a-half-week highs, failed to enthuse bullish investors or give any extra support for the USD/JPY exchange rate. Despite the fact that the intraday bullish rise stalled just ahead of the mid-114.00s, any significant retracement is expected to be limited in the face of an increase in US Treasury bond rates. Investors may also opt to remain on the sidelines when the Federal Open Market Committee (FOMC) meets this week to discuss monetary policy.
The markets appear to be persuaded that the Federal Reserve will be obliged to take a more assertive policy response to keep inflation from rising too quickly. It was spurred by the US Core PCE Price Index, the Fed’s favored inflation indicator, which rose to near 30-year highs on Friday, indicating that consumer cost strains are becoming entrenched in the economy. According to several analysts, this played a major role in the recent increase in US bond yields, which could operate as a tailwind for the US Dollar.
The Federal Reserve is expected to disclose its stance on Wednesday, which will have an impact on the USD’s price trends. Aside from that, the publication of the closely-watched US monthly employment report (NFP) on Friday will be critical in deciding the direction of the USD/JPY cross in the immediate term. Traders looked at the publication of the US ISM Manufacturing PMI on Monday, as well as the overall risk perception in the market, to identify short-term possibilities around the major.