USD/JPY storms through 138.00 as Powell, Kuroda highlight policy contrast

• USD/JPY catches a fresh bid in Asia on renewed USD buying.
• Powell, Kuroda underscore Fed-BOJ monetary policy divergence.  
• The triangle breakout on the 1D chart puts focus back on 139.39.

USD/JPY is rising for the second straight day on Monday, storming through the 138.00 hurdle for the first time in a week. The extension of the US dollar recovery amid broad risk-aversion and hawkish rhetoric from Fed Chair Jerome Powell is boding well for the currency pair.

However, the main catalyst behind the latest leg higher in the spot could be linked to the widening Fed-BOJ monetary policy divergence after Powell signaled a continuation of the Fed tightening cycle in coming months to tame inflation while BOJ Governor Haruhiko Kuroda said that the central bank will stick to its easing policy stance “until wages and prices rise in a stable and sustainable manner.”

Both central banks’ leaders delivered remarks on the economic and policy outlooks at the Kansas City Fed’s Jackson Hole Symposium held on August 25-27. Next of relevance for the major remains the US ISM business surveys and Nonfarm Payrolls due later this week, as Monday lacks top-tier economic events.

Meanwhile, markets will also pay close attention to the repricing of the Fed rate hike bets for September, in light of the incoming data. At the start of the week, markets are wagering a 64% probability of a 75 bps Fed rate hike next month, up from 61% seen on Friday.

From a short-term technical perspective, bulls are likely to flex their muscles going forward, especially after the pair validated an upside breakout from a triangle on the daily chart on Friday.

The bullish formation points to more upside in the near term, with buyers eyeing a test of the two-decade highs of 139.39.

Ahead of that, the 138.50 psychological level and the July 21 high of 138.87 will challenge the bearish commitments.

The 14-day Relative Strength Index (RSI) is trading listlessly above the midline, keeping bulls hopeful.

On the downside, the immediate cushion is seen at the triangle resistance now support at 137.43. Sellers will then seek a test of the mildly bullish 50-Daily Moving Average (DMA) support at 136.85.

USD/JPY: Daily chart

USD/JPY: Additional levels to consider