September 12, 2022 03:40 AM ET
By: AnalysisWatch
The USD/JPY pair is retreating nearly 90 pips from the daily high and is approaching the mid-142.00s during Monday's European session.
The U.S. dollar continues its corrective pullback after hitting a two-decade high last week and remains under heavy selling pressure on Monday. This has the effect of weakening the USD/JPY pair. In addition, speculation that authorities may soon step in to stop the Japanese yen's free fall has also helped limit the currency's rise. Indeed, Japan's Deputy Cabinet Secretary General, Seiji Kihara, has urged the government to take the necessary steps to counter excessive declines in the yen.
That said, a combination of factors should help limit the decline in the USD/JPY pair and support the prospects of resuming a strong month-old upward trajectory. A generally positive tone in the equity markets, as well as a wide divergence in the policy stance taken by the Bank of Japan and the Federal Reserve, could undermine the safe haven yen. It is worth mentioning that the BoJ has lagged behind other major central banks in the policy normalization process and remains committed to further monetary easing. In contrast, the Fed is expected to tighten policy at a faster pace.
However, the markets already seem to have priced in a 75 basis point rate hike at the upcoming FOMC meeting on September 20-21. Therefore, dollar bulls may wait for the crucial U.S. consumer inflation numbers on Tuesday before making any new bets, which will play a key role in influencing the Fed's policy outlook. These numbers will play a key role in influencing the Fed's policy outlook, which will boost demand for the dollar and give the USD/JPY pair a new boost. In the meantime, traders may prefer to sit on the sidelines in the absence of any significant economic releases for the US market.