USD/JPY jumps to fresh monthly peak, seems poised to prolong the appreciating move

• USD/JPY gains traction for the fourth straight day and jumps to over a three-week high.
• Hawkish Fed expectations, rising US bond yields underpin the USD and remain supportive.
• The Fed-BoJ policy divergence supports prospects for an extension of the strong move up.

The USD/JPY pair builds on the overnight bullish breakout momentum through the 50-day SMA resistance and gains traction for the fourth successive day on Friday. The upward trajectory prolongs through the early part of the European session and pushes spot prices to over a three-week high, around the 136.75 region.

The US dollar adds to its weekly gains climbs to a one-month high on the last day of the week, which turns out to be a key factor boosting the USD/JPY pair. Despite signs of easing inflationary pressures in the US, the recent hawkish remarks by several Fed officials suggest that the US central bank would stick to its policy tightening path. A further rise in the US Treasury bond yields reaffirms hawkish Fed expectations and continues to act as a tailwind for the greenback.

In fact, the yield on the benchmark 10-year US government bond shot back closer to the 3.0% threshold. In contrast, Japanese government bond yields remain static amid expectations that the Bank of Japan would retain its ultra-easy monetary policy stance despite rising inflation. Data released this Friday showed that core CPI in Japan rose 2.4% YoY in July, or the highest level since December 2014, and remains above the BoJ's 2% target for the fourth straight month.

The divergent Fed-BoJ monetary policy stance continues to weigh on the Japanese yen and provides an additional lift to the USD/JPY pair. Apart from this, the ongoing positive move could further be attributed to some technical buying above the 50 DMA hurdle, around the 135.50 area, which coincided with the previous monthly swing high. That said, a generally weaker tone around the equity markets could lend support to the safe-haven JPY and cap any further gains for the major.

Nevertheless, the fundamental backdrop and the technical setup favour bullish traders, supporting prospects for an extension of the ongoing appreciating move. There isn't any major market-moving economic data due for release from the US on Friday. Hence, the US bond yields would influence the USD price dynamics and provide some impetus to the USD/JPY pair. Apart from this, the broader risk sentiment would also be looked upon for short-term trading opportunities.

Technical levels to watch