USD/JPY Price Analysis: Overbought conditions warrant caution for bulls

• USD/JPY corrects from six-day highs amid weaker yields, risk-off mood.
• Daily RSI has entered the overbought territory, cautioning bulls.
• Fed/BOJ divergence to favor the USD, keeping USD/JPY’s downside capped.

USD/JPY is off the lows but remains under pressure below 124.00, keeping its corrective downside intact from six-day highs of 124.06.

The major is tracking the US Treasury yields and the dollar lower, justifying the pullback. The hawkish Fed minutes spooked investors, as they scurried for safety in the US Treasury bonds, fuelling the sell-off in the yields.

Meanwhile, the BOJ policymakers defended the central bank’s ultra-loose monetary policy, cushioning the downside in the major. The Fed-BOJ policy divergence is playing out, offering support to the USD/JPY buyers.

Technically, USD/JPY’s daily chart shows that the price is lacking follow-through upside momentum, at the moment, as 14-day the Relative Strength Index (RSI) is trading within the overbought territory.

Therefore, a test of the 123.00 support level cannot be ruled out should the pullback regain traction.

USD/JPY: Daily chart

However, any retreat in the price is likely to emerge as a good buying opportunity, as the broader uptrend remains in place after the major confirmed a bull flag on the said timeframe earlier this week.

On the upside, if Wednesday’s high of 124.06 is taken out, then bulls will aim for the March 28 high of 125.10.

USD/JPY: Additional levels to consider