USD/JPY sticks to gains near mid-140.00s, just below 24-year peak amid stronger USD

• USD/JPY catches fresh bids on Monday and inches back closer to a 24-year peak.
• A broad-based USD strength and the Fed-BoJ policy divergence remain supportive.
• Bulls seem reluctant amid thin trading volumes on the back of a holiday in the US.

The USD/JPY pair attracts fresh buying on the first day of a new week and maintains its bid tone through the first half of the European session. The pair is currently around the 140.50-140.55 region, just a few pips below a 24-year peak touched on Friday.

The US dollar hits a new two-decade high and turns out to be a key factor acting as a tailwind for the USD/JPY pair. Despite the mixed US jobs report released on Friday, firming expectations that the Fed will continue with its aggressive policy tightening remains supportive of the underlying strong bullish sentiment surrounding the USD.

In fact, the current market pricing suggests a greater chance of a supersized 75 bps Fed rate hike at the September meeting. In contrast, the Bank of Japan remains committed to its ultra-loose monetary policy stance. The resultant Fed-BoJ policy divergence continues to undermine the Japanese yen and offers additional support to the USD/JPY pair.

Furthermore, signs of stability in the equity markets could further dent demand for the safe-haven JPY and support prospects for an extension of over a three-week-old uptrend. Investors, however, seem reluctant amid relatively thin liquidity conditions on the back of the Labor Day holiday in the US and slightly overbought RSI on the daily chart.

Nevertheless, the fundamental backdrop remains tilted firmly in favour of bullish traders. This, in turn, suggests that any meaningful pullback could be seen as a buying opportunity and is more likely to remain limited.

Technical levels to watch