USD/JPY Regains Positive Traction as USD Demand Picks Up Momentum
The USD/JPY pair has managed to recover some of its losses and regain positive momentum on Friday. With a modest uptick in US bond yields, the demand for the US Dollar (USD) has revived, providing support to the pair. However, the uncertainty surrounding the Federal Reserve's rate-hike decisions might limit further gains, especially with next week's central bank event risks on the horizon. Currently trading around the 139.30 area, the pair has shown a 0.30% increase for the day after attracting dip-buying near the 138.75 region, which marked a fresh weekly low during the Asian session on Friday.
US Bond Yield Uptick Supports USD Recovery
The recent recovery in the USD/JPY pair can be attributed to a modest uptick in US Treasury bond yields. This development has bolstered the US Dollar's position, allowing it to regain positive traction after experiencing a slump to a two-week low. The recovery serves as a tailwind for the pair, as the Japanese Yen (JPY) remains undermined by the Bank of Japan's (BoJ) dovish stance. Despite Governor Ueda Kazuo's comments regarding the BoJ's implementation of policies to achieve stable 2% inflation, the JPY has shown little reaction.
Fed Rate-Hike Uncertainty Looms Over USD/JPY Gains
While the USD has found some support, the potential for further upside appears limited due to uncertainty surrounding the Federal Reserve's rate-hike path. Market sentiment indicates that the US central bank is likely to pause its year-long rate-hiking cycle in June, as suggested by Thursday's weaker US data. The surge in Initial Jobless Claims to a 20-month high has reinforced this belief. However, there is still a possibility of another 25 basis points Fed rate hike in July, as indicated by Fed funds futures. Therefore, the upcoming central bank events next week will be crucial in shaping the USD/JPY pair's future direction.
Central Bank Meetings and Their Impact
The Federal Reserve is set to announce its monetary policy decision at the end of its two-day meeting on Wednesday. This announcement will be closely followed by the Bank of Japan's meeting on Thursday. These events will play a significant role in influencing the USD/JPY pair and assist traders in determining the next major move. Additionally, concerns about a global economic slowdown, particularly in China, may favor the safe-haven JPY, limiting substantial upside potential for the pair. As we await further developments, the movement of US bond yields will continue to drive USD demand. However, with no significant macro data scheduled for Friday, market sentiment will also play a crucial role in shaping short-term opportunities surrounding the USD/JPY pair.