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Title: USD/JPY consolidates around 137.00 mark, just below a fresh 24-year peak

Jul 11, 2022 03:02 AM ET

By: AnalysisWatch

The USD/JPY pair now seems to have entered a bullish consolidation phase and oscillated in a range around the 137.00 mark, just a few pips below a new 24-year high reached on Monday.

The strong election result of the ruling conservative coalition in Japan indicated that the Bank of Japan's loose monetary policy would not change. Moreover, BoJ Governor Haruhiko Kuroda reiterated on Monday that the central bank remained ready to take additional monetary easing measures if needed. This, in turn, was seen as a key factor that weakened the Japanese yen and gave a decent boost to the USD/JPY currency pair amid a new wave of buying interest in the US dollar.

In fact, the USD index fell back from the two-decade high reached on Friday, supported by expectations that the Fed would maintain its aggressive monetary tightening stance. The bets were confirmed by the FOMC minutes released on Wednesday, which showed that another 50 or 75 basis point rate hike was likely at the July meeting. In addition, the positive monthly U.S. employment report helped the USD see fresh buying on Monday and provided a tailwind for the USD/JPY pair.

Nevertheless, the prevailing low-risk environment—combined with growing fears of a possible global recession—provided some support to the safe-haven yen. That said, a softer tone in U.S. government bond yields prevented bulls from making fresh bets and prevented further gains in the USD/JPY pair, at least for now. Nevertheless, the monetary policy divergence between the Fed and the Japanese government argues for a continuation of the short-term appreciation trend.

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