Title: USD/JPY retreats from one-month high, back below 137.00 mark amid risk-off

August 22, 2022 03:08 AM ET

By: AnalysisWatch

USD/JPY gained ground for the fifth consecutive day-also marking the seventh day of a positive move out of the previous eight-and hit a one-month high on Monday. However, the momentum falters just before the 137.50 area, forcing spot prices to give up much of their intraday gains and retreat below 137.00 in the early European session.

Investors remain concerned about a slowing global economy, which is reflected in a generally weaker tone in the equity markets. This is providing some support for the safe-haven Japanese yen and acting as a headwind for the USD/JPY pair. The flight to safety has caused U.S. Treasury yields to fall slightly, narrowing the U.S.-Japan yield spread and further supporting the yen. Nonetheless, consistent purchases of US dollars continue to provide some support to the major.

In addition, a wide divergence in the monetary policy stance adopted by the Bank of Japan and the Federal Reserve supports the prospects of some bearish buying emerging around the USD/JPY pair. It is worth mentioning that the BoJ has repeatedly stated that it will maintain its ultra-easy policy settings. On the other hand, recent hawkish comments from several Fed officials reaffirmed market expectations that the U.S. central bank would continue to tighten monetary policy to control inflation.

That said, market participants remain divided on the size of the next Fed rate hike in September. As a result, Fed Chairman Jerome Powell's speech at the Jackson Hole Symposium on Friday will be interpreted as a clue about the Fed's policy outlook. In addition, investors will take into account the important U.S. macroeconomic releases this week, which will influence the price dynamics of the dollar in the short-term. This will help determine the next step in a directional move for the USD/USD pair.