USD/JPY started the new week on a positive note, recovering Friday's retreat.
Clearly, market players believe that the Bank of Japan's negative interest rate policy will remain in effect for a long time, as a result of which dollar demand surged, even though prices attempted to return to Friday's low during the European session. Bank of England Governor Kazuo Ueda also ruled out changes in ultra-soft monetary policy recently, not reporting any plans to change yield curve control measures.
On the other hand, Fed Chairman Jerome Powell reiterated last week that two more rate hikes may occur by the end of the year. Moreover, according to the latest PCE data, inflation remains significantly above the target level of 2%, indicating prospects for further monetary policy tightening.
Markets assess almost an 85% probability that the interest rate will be raised by 25 basis points on July 25-26 at the upcoming FOMC meeting. Such an increase will support the yield of US Treasury bonds, which will push USD/JPY to grow.
However, talks of possible intervention by Japanese authorities to support the weakened yen deter traders from aggressive bets. Important US macroeconomic data scheduled to be published at the beginning of this month may also impact dollar demand, so it would be prudent to wait for some subsequent buying and price consolidation above 145.00 before positioning for the continuation of the upward trend.
Current signals suggest that the path of least resistance for USD/JPY lies upward, while any significant corrective decline will remain limited and may attract new buyers.
