Title: USD/JPY retakes 134.00 mark and beyond, eyes weekly high set on Wednesday

August 4, 2022 02:24 AM ET

By: AnalysisWatch

The USD/JPY pair overcame an interim decline to the 133.40 area on Thursday and turned positive for the third consecutive day. Spot prices climbed back above the 134.00 level in early European trading, with bulls now targeting a move towards the weekly high reached the previous day.

A major divergence in the monetary policy stances of the Federal Reserve and the Bank of Japan continues to weigh on the Japanese yen, which in turn acts as a tailwind for the USD/JPY pair. Recall that several Fed officials have indicated this week that further rate hikes are likely in the near future. In contrast, the BoJ has repeatedly called for maintaining its ultra-loose policy and keeping the 10-year Japanese government bond yield at 0%.

However, the upward trend in the USD/JPY pair appears to be limited given the continued decline in U.S. government bond yields, which keeps U.S. dollar bulls on the defensive. That being said, cautious sentiment in the equity markets could support the safe-haven JPY and help keep the USD/JPY pair's upside limited, at least for now. Therefore, it is advisable to wait for strong follow-through buying before positioning for further upside.

On Thursday, the main focus will remain on the Bank of England's monetary policy decision, which could create some volatility in the markets and give the USD/JPY pair some boost. Traders will also be guided by the release of weekly initial jobless claims in the US, which is expected later today in North America.

Together with US bond yields and the Fed speech, this could influence USD price dynamics and give traders the opportunity to capitalize on short-term opportunities.