USD/JPY hits fresh multi-year high, holds above 119.00 amid resurgent USD demand

• USD/JPY caught fresh bids on Friday after the BoJ stuck to its accommodative policy stance.
• A goodish pickup in the USD demand provided an additional boost and remained supportive.
• A softer risk tone could benefit the safe-haven JPY and cap gains amid overbought conditions.

The USD/JPY pair extended its steady intraday ascent through the mid-European session and climbed to a fresh multi-year peak, around the 119.10-119.15 region in the last hour.

A combination of supporting factors assisted the USD/JPY pair to regain positive traction on the last day of the week and prolong its recent bullish trajectory witnessed over the past two weeks or so. The Bank of Japan stuck to its dovish stance and left its ultra-easy policy setting unchanged at the end of the March meeting. This, in turn, weighed on the Japanese yen and pushed the pair higher amid a goodish pickup in the US dollar demand.

The greenback made a solid comeback on Friday and reversed the previous day's slide to the one-week low, bolstered by the start of the policy tightening cycle by the Fed. It is worth recalling that the US central bank hike its target fund rate by 25 bps on Wednesday and indicated that it could raise interest rates at all the six remaining meetings in 2022. This, along with elevated US Treasury bond yields, underpinned the greenback.

The latest leg up now seems to have confirmed a near-term bullish breakout and might have already set the stage for a further near-term appreciating move for the USD/JPY pair. The divergence in the BoJ-Fed monetary policy outlook adds credence to the constructive outlook. That said, extremely overbought conditions on the daily chart could hold back traders from placing aggressive bullish bets, at least for the time being.

Moreover, a weaker risk tone, which tends to benefit the safe-haven Japanese yen, might further contribute to capping the USD/JPY pair. The lack of progress in the Russia-Ukraine peace negotiations tempered investors' appetite for riskier assets and led to a fresh leg down in the equity markets. Traders might also prefer to wait on the sidelines ahead of a meeting between US President Joe Biden and his Chinese counterpart Xi Jinping.

Nevertheless, the bias seems tilted firmly in favour of bullish traders, though the technical set-up makes it prudent to wait for some near-term consolidation or a modest pullback before the next leg up. Nevertheless, the USD/JPY pair seems all set to settle near the highest level since February 2016 and record strong gains for the second successive week.

Technical outlook