USD/JPY steadily climbs back to mid-148.00s, multi-day high amid sustained USD buying

• USD/JPY gains traction for the second successive day amid sustained USD buying.
• The Fed-BoJ policy divergence continues to undermine the JPY and offers support.
• The uptick lacks bullish conviction as the focus remains on the key FOMC meeting.

The USD/JPY pair edges higher for the second straight day on Monday and looks to build on its recovery from the 145.00 psychological mark, or a nearly three-week low touched last Thursday. The pair stick to its modest gains through the first half of the European session and is currently placed near a multi-day high, just below mid-148.00s.

The Japanese yen continues to be undermined by the fact that the Bank of Japan held interest rates at record lows on Friday and reiterated that it will continue to guide the 10-year bond yield at 0%. The central bank reaffirmed the need for accommodative policy amid economic headwinds stemming from the resurgence of COVID-19 cases in China and global recession fears. This, along with some follow-through US dollar buying interest continues to lend support to the USD/JPY pair.

In fact, the USD Index, which measures the greenback's performance against a basket of currencies, extends last week's bounce from over a one-month low amid rising US Treasury bond yields. The prospects for another supersized 75 bps Fed rate hike move in November turn out to be a key factor pushing the US bond yields higher and lending some support to the greenback. The USD bulls, however, seem reluctant to place aggressive bets ahead of this week's key central bank event risk.

The Fed is scheduled to announce its monetary policy decision on Wednesday and investors will look for fresh clues about the future rate-hike path. Hence, the focus will remain on the accompanying policy statement and the post-meeting press conference. This will influence the USD price dynamics and help determine the next leg of a directional move for the USD/JPY pair. In the meantime, elevated US bond yields should act as a tailwind for the USD amid absent relevant economic data.

Technical levels to watch