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Title: USD/JPY struggles for a firm direction, remains confined in range around 135.00 mark

August 9, 2022 04:23 AM ET

By: AnalysisWatch

On Tuesday, the USD/JPY continues its sideways consolidative price movement in the first half of European trading and remains trapped in a narrow range around the 135.00 mark.

Concerns about a global economic slowdown and tensions between the U.S. and China over Taiwan continue to provide some support to the Japanese yen's safe-haven exchange rate. The flight to safety is reinforced by the continued decline in U.S. Treasury bond yields. This in turn narrows the interest rate differential between the U.S. and Japan and further favors the JPY. Apart from that, the slight weakness of the U.S. dollar acts as a headwind for the USD/JPY currency pair.

However, the downward trend is cushioned by the strongly diverging monetary policy stances of the Bank of Japan and the Federal Reserve. For example, the Bank of Japan has repeatedly reiterated that it will maintain its ultra-loose monetary policy and keep the yield on 10-year Japanese government bonds at 0%. In contrast, the U.S. Federal Reserve is expected to maintain and continue its aggressive tightening course.

Friday's monthly U.S. jobs report allayed fears that the economy is in recession and revived bets on a larger Fed rate hike at the September meeting. In addition, Fed Governor Michelle Bowman said Saturday that the U.S. central bank should consider further rate hikes of 75 basis points at upcoming meetings to bring inflation back down. The Fed's dismissive stance is helping to limit USD losses and support the USD/JPY currency pair.

Investors also seemed reluctant to make aggressive bets, preferring to wait for the latest consumer inflation figures in the US, due to be released on Wednesday. The U.S. consumer price index report is expected to provide fresh clues on the Fed's monetary policy outlook and significantly influence near-term USD price dynamics. This, in turn, should help investors to determine the next stage of the directional development of the USD/JPY pair

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