USDJPY steadily climbs back to mid-147.00s amid modest USD strength, lacks follow-through

• USDJPY regains positive traction on Monday amid the emergence of some USD buying.
• Elevated US bond yields, the Fed-BoJ policy divergence remains supportive of the move.
• Intervention fears could offer support to the JPY and keep a lid on any meaningful upside.

The USDJPY pair attracts some buying near the 146.70 region on the first day of a new week and recovers a major part of Friday's post-NFP losses. The pair maintains its bid tone through the early European session and is currently hovering near the daily top, around mid-147.00s.

The US Dollar regains positive traction and turns out to be a key factor lending some support to the USDJPY pair. Despite the mixed results from the US monthly jobs data on Friday, market participants remain convinced that the Federal Reserve will stick to its hawkish stance to combat stubbornly high inflation. In fact, the markets are still pricing in the possibility of at least a 50 bps Fed rate hike in December, which remains supportive of elevated US Treasury bond yields and acts as a tailwind for the greenback.

In contrast, the Bank of Japan, so far, has shown no inclination to hike interest rates and reiterated that it will continue to guide the 10-year bond yield at 0%. This marks a big divergence in the policy stance adopted by the two major central banks and supports prospects for a further appreciating move for the USDJPY pair. That said, speculations that Japanese authorities might intervene again to soften any steep fall in the domestic currency might keep a lid on any meaningful upside for spot prices amid a softer risk tone.

The market sentiment remains fragile amid concerns about headwinds stemming from China's commitment to maintaining its economically disruptive zero-COVID policy. Apart from this, the protracted Russia-Ukraine war has been fueling recession fears and tempering investors' appetite for riskier assets. This is evident from a generally negative mood around the equity markets, which tends to benefit the safe-haven JPY. This might further contribute to capping any further gains for the USDJPY pair in the absence of relevant economic data.

Even from a technical perspective, the recent range-bound price action points to indecision over the near-term trajectory for the USDJPY pair. Traders also seem reluctant to place aggressive bets and might prefer to wait for a fresh catalyst from the release of the latest US consumer inflation figures on Thursday. This makes it prudent to wait for strong follow-through buying before positioning for any further appreciating move.

Technical levels to watch