USD/JPY extends BoJ-inspired rally to refresh seven-week top near 137.00 despite sluggish yields

• USD/JPY stretches the BoJ-led rise despite holidays in major markets, sluggish yields.
• Downbeat JGBs, firmer US Dollar and First Republic bank woes also propel the Yen pair prices.
• Nikkie closed at the highest levels in nine months as easy money policy talks join mixed Japan data.
• US ISM Manufacturing PMI can entertain intraday traders, Fed, US NFP will be the key for clear directions.

USD/JPY bulls are in the driver’s seat even as holidays in multiple markets challenge the momentum during early Monday. That said, the Yen pair prods the 137.00 round figure while refreshing the highest levels since early March by the press time.

While checking the Yen pair’s latest up-moves, the biggest in 2023, a divergence between the monetary policy outlook of the Federal Reserve (Fed) and the Bank of Japan (BoJ) could be considered the key catalyst. Following that, downbeat Japanese Government Bond (JGB) yields and the US Dollar’s broad run-up also gain the attention of the USD/JPY pair watchers.

Furthermore, cautious optimism in the market, amid hopes that the US Federal Deposit Insurance Corporation (FDIC) will be able to defend the First Republic Bank also propel the Yen pair.

It’s worth noting that final readings of Japan’s Jibun Bank Manufacturing PMI for April confirmed the initial 49.5 figures, showing a contraction in activities, while the Japanese Consumer Confidence Index for the said month improved to 35.4 from 33.9 prior and 32.4 market forecasts.

On the other hand, the recently upbeat prints of the US Core PCE Price Index and early signals of the US inflation have propelled the hawkish Fed bets and underpinned the US Dollar’s rebound. That said, the US Dollar Index (DXY) renews its intraday high near 101.85 during a three-day uptrend by the press time.

Against this backdrop, market sentiment remains cautiously optimistic as the Fed’s 0.25% rate hike is already given and the First Republic bank-led wounds are likely to be overcome soon. Adding to the slightly positive mood, as well as the USD/JPY upside, could be the absence of traders from Europe, the UK, China and India, which in turn eases the recession talks and allow markets to consolidate previous pessimism.

Above all, the BoJ’s inaction on Friday and the newly appointed Governor Kazuo Ueda’s defense of the easy-money policy by saying, that it is “appropriate to continue monetary easing to achieve 2% inflation target in tandem with wage growth,” keeps USD/JPY buyers hopeful. That said, the BoJ dropped its forward guidance for interest rates and launched a review of its policies that will take more than a year, which in turn might have also fuelled the USD/JPY prices of late.

Moving on, a light calendar on Monday and holidays in multiple markets, together with a technical breakout, may allow the USD/JPY bulls to keep the reins with eyes on the US ISM Manufacturing PMI for April for intraday directions.

Technical analysis

Considering the overbought RSI, the 200-DMA near 137.00, quickly followed by the 137.90-138.20 resistance zone comprising multiple levels marked since early December 2022, to challenge the USD/JPY buyers.