USD/JPY defends 100-hour SMA, trades with a mild positive bias below mid-144.00s

• USD/JPY finds support near the 100-hour SMA and stalls Friday’s pullback from the YTD peak.
• The Fed-BoJ policy divergence continues to act as a tailwind for the pair and limits the downside.
• Intervention fears hold back bulls from placing aggressive bets ahead of the key US macro data.

The USD/JPY pair struggles to gain any meaningful traction on Monday and oscillates in a narrow trading band, just above the 100-hour Simple Moving Average (SMA) through the Asian session. Spot prices currently trade around the 144.30 area and for now, seem to have stalled the retracement slide from the highest level since November 2022 touched on Friday.

A big divergence in the monetary policy stance adopted by the Bank of Japan (BoJ) and the Federal Reserve (Fed) turns out to be a key factor that continues to act as a tailwind for the USD/JPY pair. In fact, market participants seem convinced that BoJ's negative interest-rate policy will remain in place at least until next year. Furthermore, BoJ Governor Kazuo Ueda recently ruled out the possibility of any change in ultra-loose policy settings and signalled no immediate plans to alter the yield curve control measures.

In contrast, Fed Chair Jerome Powell reiterated last week that borrowing costs may still need to rise as much as 50 bps by the end of this year. Moreover, the current market pricing indicates a nearly 85% chance of a 25 bps lift-off at the next FOMC policy meeting in July, which assists the US Dollar (USD) to attract some buyers and further seems to lend support to the USD/JPY pair. That said, the softer US PCE Price Index data - the Fed's preferred inflation gauge - is holding back the USD bulls from placing aggressive bets.

According to the data published by the the Bureau of Economic Analysis, the annual PCE Price Index decelerated to 3.8% in May from 4.3% in the previous month. Additional details showed that the US consumer spending slowed sharply in May. Apart from this, speculations about a potential intervention by Japanese authorities contributes to keeping a lid on any meaningful upside for the USD/JPY pair. The fundamental tal backdrop, however, suggests that the path of least resistance for spot prices remains to the upside.

Market participants now look forward to important US macro releases scheduled at the beginning of a new month, starting with the ISM Manufacturing PMI, due later during the early North Amreican session this Monday. The key focus, meanwhile, will remain on the FOMC meeting minutes on Wednesday and the closely-watched US monthly employment details - popularly known as the NFP report on Friday. In the meantime, traders might refrain from placing aggressive directional bets around the USD/JPY pair.

Technical levels to watch