USD/JPY retreats from one-month high, back below 137.00 mark amid risk-off

• USD/JPY struggles to preserve modest intraday gains to a one-month high touched on Monday.
• Recession fears, sliding US bond yields offer support to the safe-haven JPY and act as a headwind.
• Hawkish Fed expectations continue to underpin the USD and should limit any meaningful slide.

The USD/JPY pair gains traction for the fifth straight day - also marking the seventh day of a positive move in the previous eight - and climbs to a one-month high on Monday. The momentum, however, falters just ahead of the 137.50 area, forcing spot prices to surrender a major part of intraday gains and retreat below the 137.00 mark during the early European session.

Investors remain concerned about a global economic downturn, which is evident from a generally weaker tone around the equity markets. This, in turn, offers some support to the safe-haven Japanese yen and acts as a headwind for the USD/JPY pair. The flight to safety led to a modest downtick in the US Treasury bond yields, narrowing the US-Japan rate differential and further benefitting the JPY. That said, sustained US dollar buying continues to lend some support to the major.

Apart from this, a big divergence in the monetary policy stance adopted by the Bank of Japan and the Federal Reserve supports prospects for the emergence of some dip-buying around the USD/JPY pair. It is worth mentioning that the BoJ has repeatedly said that it would retain its ultra-easy policy settings. In contrast, the recent hawkish comments by several Fed officials reaffirmed market expectations that the US central bank would continue to tighten its monetary policy to tame inflation.

That said, market participants remain divided over the size of the next Fed rate hike in September. Hence, Fed Chair Jerome Powell's speech at the Jackson Hole Symposium on Friday will be looked upon for clues about the central bank's policy outlook. Apart from this, investors would take cues from this week's important US macro releases, which will influence the near-term USD price dynamics. This would help determine the next leg of a directional move for the USD/USD pair.

In the meantime, traders might refrain from placing aggressive bets and prefer to move on the sidelines amid absent relevant US economic data on Monday. Nevertheless, the fundamental backdrop seems tilted firmly in favour of bullish traders, suggesting that any meaningful dip might still be seen as a buying opportunity and remain limited.

Technical levels to watch