USDJPY hangs near multi-month low, remains below 140.00 despite modest USD uptick

• USDJPY struggles to capitalize on its modest recovery gains and remains below the 140.00 mark.
• Rebounding US bond yields revive the USD demand, though fail to provide any meaningful lift.
• Bets for smaller Fed rate hikes continue to act as a headwind for the buck and capping the major.

The USDJPY pair attracts some buying near the 138.80 region on the first day of a new week and reverses a part of Friday's slide to its lowest level since late August. Spot prices, however, lack bullish conviction and remain below the 140.00 psychological mark through the early European session.

The US Dollar stages a modest recovery from a nearly three-month low touched on Friday in reaction to hawkish remarks by Fed Governor Christopher Waller and acts as a tailwind for the USDJPY pair. in a conversation in Sydney, Australia, Waller noted that markets have overreacted to the softer-than-expected October consumer price inflation data last week.

Waller added that the Fed was not softening its fight against inflation and that it will take a string of soft CPI reports for the US central bank to take its foot off the brakes. This, in turn, pushes the US Treasury bond yields higher. The resultant widening of the US-Japan rate differential undermines the Japanese Yen and offers additional support to the USDJPY pair.

Bulls, however, seem to struggle to capitalize on the attempted recovery amid rising bets for smaller rate hikes by the Fed. In fact, the markets are pricing in a greater chance of a 50 bps liftoff at the next FOMC policy meeting in December. This, in turn, holds back the USD bulls from placing aggressive bets and capping the upside for the USDJPY pair, at least for now.

Apart from this, a softer risk tone offers some support to the safe-haven JPY and is seen as another factor acting as a headwind for spot prices. This makes it prudent to wait for strong follow-through buying before confirming that the USDJPY pair has formed a near-term bottom in the absence of any relevant market-moving economic releases from the US.

Technical levels to watch