USD/JPY Rises to Fresh Daily Highs, Further Above Mid-134.00s Despite Weaker USD

Highlights

• USD/JPY gained strong positive traction in reaction to BoJ Governor Ueda's dovish remarks .

• Falling US bond yields continue to weigh on the USD and may act as a cap.

• Cautious sentiment in the markets could favor JPY and contribute to capping the currency pair.

The USD/JPY currency pair has traditionally had a close correlation with U.S. Treasuries. The USD/JPY pair started the new week on a positive note and built on steady intraday gains throughout the early North American session. Momentum lifted the spot price to fresh daily highs, around the 134.70-134.75 region in the last hour and sponsored by the high bid tone surrounding the Japanese Yen (JPY).

Bank of Japan (BoJ) Governor Kazuo Ueda sounded dovish this Monday and said that the central bank should maintain monetary easing as inflation remains below 2%. Ueda added that inflation forecasts should be strong enough and near 2% in the coming year to consider yield curve control adjustments. This marks a major divergence compared to the recent hawkish statements of some Federal Reserve (The Fed) officials, who indicated that the US central bank will continue to raise interest rates, and turned out to be the main factor pushing the USD/JPY pair higher.

Meanwhile, the prospect of further policy tightening by the Fed has heightened concerns over economic drag stemming from rising borrowing costs and boosting demand for traditional safe-haven assets. This led to a further slide in the US Government bond yields, which dragged the US Dollar (USD) to a one-week low and possibly kept traders from placing any aggressive bullish bets around the USD/JPY pair. Apart from this, the global movement of funds to safer assets could benefit the JPY and further contribute to limiting the USD/JPY pair's upside, at least for now.

Traders may also prefer to wait ahead of the week's important US macro releases, starting with the Conference Board Consumer Confidence Index on Tuesday, followed by US Durable Goods Orders data on Wednesday, Preliminary first quarter GDP on Thursday and the Core PCE Price Index. US – The Fed's preferred inflation gauge on Friday. Additionally, traders will be taking cues from the highly anticipated BoJ monetary policy meeting on the last trading day of the week to determine the USD/JPY pair's near-term trajectory.