USD/JPY slides below mid-146.00s, multi-day low in wake to Ueda hawkish comments

• USD/JPY drops to a multi-day low on Monday in reaction to BoJ Ueda's hawkish remarks.
• A modest USD pullback from a six-month peak contributes to the sharp intraday downfall.
• The divergent Fed-BoJ policy outlook limits losses ahead of this week's key US macro data.

The buying interest around the Japanese Yen (JPY) remains unabated through the Asian session on Monday and drags the USD/JPY pair to a multi-day low, around the 146.35 region in the last hour. The pair has now retreated over 150 pips from the highest level since November 2022, near the 147.85 zone touched on Friday and is pressured by a combination of factors.

The Japanese Yen (JPY) strengths against all Group-of-10 currencies in reaction to Bank of Japan Governor Kazuo Ueda's hawkish remarks, signalling possible interest rate hikes. In an interview with Yomiuri newspaper published on Saturday, Ueda said that ending negative interest rates is among the options available if the BoJ becomes confident that prices and wages will keep going up sustainably. This, along with a modest US Dollar (USD) pullback from a six-month peak, contributes to the offered tone surrounding the USD/JPY pair.

Furthermore, the latest leg down over the past hour or so could also be attributed to some technical selling below the 200-hour Simple Moving Average (SMA) support. That said, growing acceptance that the Federal Reserve (Fed) will stick to its hawkish stance and keep interest rates higher for longer should limit any meaningful USD downfall. The bets were reaffirmed by The Wall Street Journal report, noting that some officials still prefer to err on the side of raising rates too much, reasoning that they can cut them later.

The outlook, meanwhile, remains supportive of elevated US Treasury bond yields and should act as a tailwind for the Greenback. This, along with the fact that Ueda reiterated the need to continue the patient monetary easing as the BoJ is some distance away from achieving its price stability target, supports prospects for the emergence of some dip-buying around the USD/JPY pair. This, in turn, warrants caution before placing aggressive bearish bets and positioning for deeper losses in the absence of any relevant macro data.

Traders might also prefer to move to the sidelines ahead of this week's release of the latest US consumer inflation figures on Wednesday. This will be followed by the US Producer Price Index (PPI) and monthly Retail Sales data on Thursday. Apart from this, the European Central Bank (ECB)-infused volatility will drive the USD demand and provide some meaningful impetus to the USD/JPY pair. In the meantime, fears that Japanese authorities might intervene to prop up the domestic currency should keep a lid on spot prices.

Technical levels to watch