USD/JPY climbs to over one-week tops, eyeing mid-114.00s

• A combination of factors pushed USD/JPY higher for the second straight session on Monday.
• A positive risk tone undermined the safe-haven JPY and remained supportive of the move up.
• The USD benefitted from hawkish Fed expectations and provided an additional lift to the pair.

The USD/JPY pair edged higher through the early European session and climbed to one-and-half-week tops, around the 114.35 region in the last hour.

The pair build on its recovery move from two-week lows, around the 113.25 region touched last Thursday and gained some follow-through traction on the first day of a new week. This marked the second successive day of a positive move for the USD/JPY pair and was sponsored by a combination of factors.

Japanese Prime Minister Fumio Kishida’s victory in snap elections raised hopes for additional stimulus and boosted investors' sentiment. This was evident from a generally positive tone around the equity markets, which undermined the safe-haven Japanese yen and extended some support to the USD/JPY pair.

Traders further took cues from a modest US dollar strength and seemed unaffected by the disappointing release of the official Chinese PMI prints over the weekend. The USD stood tall near two-and-half-week tops and remained well supported by expectations for an early policy tightening by the Fed.

Data released on Friday showed that the Fed's preferred inflation gauge held steady near 30-year highs and indicated that consumer cost pressures are getting entrenched. This fueled speculations that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly higher inflation.

Hence, the market focus will remain on the outcome of a two-day FOMC monetary policy meeting, starting this Tuesday. The Fed is scheduled to announce its decision during the US session on Wednesday, which will influence the USD price dynamics and determine the near-term trajectory for the USD/JPY pair.

In the meantime, Monday's release of the US ISM Manufacturing PMI will be looked upon for some impetus later during the early North American session. Apart from this, the broader market risk sentiment should further allow traders to grab some short-term opportunities around the USD/JPY pair.

Technical levels to watch