USD/JPY consolidates in a narrow range, manages to hold above 134.00 mark

• USD/JPY lacks any firm directional bias and oscillates in a narrow trading band on Monday.
• Geopolitical tensions, recession fears benefit the safe-haven JPY and cap gains for the pair.
• Hawkish Fed expectations continue to underpin the USD and should help limit any downfall.

The USD/JPY pair struggles to gain any traction on Monday and seesaws between tepid gains/minor losses through the early European session. The pair is currently placed just above the 134.00 round figure and for now, seems to have stalled Friday's modest pullback from a nearly two-month high.

Against the backdrop of looming recession risks, geopolitical tensions drive some haven flows towards the Japanese Yen (JPY) and acts as a headwind for the USD/JPY pair. After firing an intercontinental ballistic missile (ICBM) into the sea off Japan's west coast over the weekend, North Korea launched two more ballistic missiles off its east coast on Monday. This comes amid talk of Russia ramping up attacks in Ukraine and lending some support to traditional safe-haven assets, including the JPY.

The downside for the USD/JPY pair, however, remains cushioned amid the underlying bullish sentiment surrounding the US Dollar, bolstered by the prospects for further policy tightening by the Fed. The markets are pricing in at least a 25 bps lift-off at each of the next two FOMC policy meetings in March and May. The bets were reaffirmed last week after the US CPI and PPI data showed that inflation isn't coming down quite as fast as hoped, and hawkish comments by several Fed policymakers.

This, in turn, is holding back traders from placing aggressive bets around the USD/JPY pair ahead of the FOMC monetary policy meeting minutes, due for release on Wednesday. Investors also await Friday's testimony from the newly nominated head of the Bank of Japan (BoJ) Governor Kazuo Ueda for his view on the future of yield curve control (YCC) and super-easy monetary policy. This, in turn, will play a key role in influencing the USD/JPY pair and help determine the next leg of a directional move.

In the meantime, relatively lighter trading volumes on the back of the Presidents' Day holiday in the US, could lead to an extension of the USD/JPY pair's range-bound price action on Monday. From a technical perspective, last week's breakout through the 132.90-133.00 resistance zone favours bullish traders, suggesting that any meaningful pullback could be seen as a buying opportunity.

Technical levels to watch