USD/JPY oscillates in a range just above 146.00 mark, bullish potential seems intact

• USD/JPY consolidates Friday’s solid bounce from a multi-week low amid subdued USD demand.
• The divergent Fed-BoJ stance continues to act as a tailwind for the pair and favours bullish traders.
• Intervention fears seem to be the only factor keeping a lid on any meaningful upside for the major.

The USD/JPY pair struggles to capitalize on Friday’s solid recovery from the 144.45 area, or its lowest level since August 11 and kicks off the new week on a subdued note. Spot prices, however, manage to hold above the 146.00 mark through the first half of the European session and the fundamental backdrop remains tilted in favour of bullish traders.

The US Dollar (USD) consolidates the post-NFP strong move up back closer to the August monthly swing high and turns out to be a key factor that continues to act as a tailwind for the USD/JPY pair. The closely-watched US monthly employment details showed that the economy added 187K jobs in August, higher than market expectations and the previous month’s downwardly revised reading of 157K. Adding to this, the jobless rate climbed to 3.8% from 3.5% in July and Average Hourly Earnings edged lower to 4.3% on a yearly basis from 4.4%. The data pointed to a slight deterioration in the labour market and ensures that the Fed will leave rates unchanged at its September meeting, though the markets are still pricing in the possibility of one more 25 bps lift-off by the end of this year. This remains supportive of elevated US Treasury bond yields and is seen underpinning the Greenback.

The Japanese Yen (JPY), on the other hand, is weighed down by the fact that the Bank of Japan (BoJ) has shown no signs of an imminent change in its super-easy monetary policy stance. In fact, BoJ board member Toyoaki Nakamura indicated last week that it was premature to tighten monetary policy as recent increases in inflation were mostly driven by higher import costs rather than wage gains. Moreover, BoJ Governor Kazuo Ueda had said that the underlying inflation remains a bit below the 2% target, ensuring the status quo until next summer. This marks a big divergence in comparison to other major central banks, including the Fed, and suggests that the path of least resistance for the USD/JPY pair is to the upside. That said, fears that Japanese authorities might intervene in the markets to prop up the domestic currency seem to keep a lid on any further gains for the major.

Moving ahead, there isn’t any relevant market-moving economic data due for release on Monday and the US banks will be closed in observance of Labor Day, supporting prospects for some near-term consolidation for the USD//JPY pair. Nevertheless, the aforementioned fundamental backdrop favours bullish traders. Hence, any meaningful dip might still be seen as a buying opportunity and is more likely to remain limited, at least for the time being.

Technical levels to watch