USD/JPY sticks to gains above 144.00 mark, bulls still seem to have the upper hand

• USD/JPY gains traction for the second straight day and seems poised to climb further.
• The Fed-BoJ policy divergence weighs on the JPY and continues to act as a tailwind.
• Sustained USD buying remains supportive of the move and reaffirms the positive bias.

The USD/JPY pair attracts some buying for the second successive day on Monday and maintains its bid tone through the mid-European session. The pair is currently hovering near the top end of its daily trading range, around the 144.20 region, up over 0.60% for the day.

The yen did get a strong boost last week after the Japanese government intervened to stem the rapid fall in the domestic currency. The initial market reaction, however, turned out to be short-lived amid a big divergence in the monetary policy stance adopted by the Bank of Japan and other major central banks. In fact, the BoJ has reaffirmed its commitment to ultra-low interest rates and vowed to keep purchasing bonds so that 10-year yields remain pinned at zero.

In contrast, the Federal Reserve signalled that it will likely undertake more aggressive rate increases at its upcoming meetings to combat stubbornly high inflation. This remains supportive of elevated US Treasury bond yields, widening the US-Japan rate differential and weighing on the JPY. Meanwhile, a more hawkish stance adopted by the US central bank continues to underpin the US dollar, which is seen as another factor pushing the USD/JPY pair higher on Monday.

That said, the prevalent risk-off environment offers some support to the safe-haven JPY and keeps a lid on any meaningful upside for the major, at least for the time being. Nevertheless, the fundamental backdrop seems tilted in favour of bullish traders and suggests that the path of least resistance for the USD/JPY pair is to the upside. Hence, some follow-through strength, back towards reclaiming the 145.00 psychological mark, remains a distinct possibility.

There isn't any major market-moving economic data due for release from the US on Monday. Traders, meanwhile, will take cues from speeches by influential FOMC members Boston Fed President Susan Collins, Atlanta Fed President Raphael Bostic and Dallas Fed President Lorie Logan. This, along with the US bond yields, will influence the USD. Apart from this, the broader market risk sentiment might produce short-term trading opportunities around the USD/JPY pair.

Technical levels to watch