Despite gaining some positive traction on Monday, the USD/JPY pair is facing challenges in capitalizing on this move. The divergent policy expectations between the Bank of Japan (BoJ) and the Federal Reserve (Fed) are proving to be a key factor in capping further gains.
A positive risk tone in the market has been undermining the safe-haven Japanese Yen (JPY), which could potentially lend some support to the USD/JPY pair. However, rising geopolitical tensions in the Middle East are acting as a barrier to the optimism in the markets.
Fundamental factors affecting USD/JPY pair
Investors are closely monitoring the upcoming release of the FOMC meeting minutes on Wednesday, followed by Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium on Friday. The divergent BoJ-Fed policy expectations are keeping a lid on any significant upside potential for the currency pair.
The market reacted to the stronger second-quarter Gross Domestic Product (GDP) print released from Japan, with expectations that it could encourage the Bank of Japan (BoJ) to continue raising interest rates. On the other hand, the Federal Reserve (Fed) is expected to start its policy-easing cycle in September, as indicated by San Francisco Fed President Mary Daly’s remarks.
Uncertainty in directional move
The prevailing fundamental backdrop suggests that the USD/JPY pair may face downside pressure in the near term. However, investors are hesitant to make big moves until they have more clarity on the Fed’s rate-cut path. This uncertainty is likely to keep the focus on upcoming economic data releases and central bank speeches.
The USD/JPY pair is struggling to maintain its upward momentum due to a complex interplay of factors including divergent central bank policies, geopolitical tensions, and market sentiment. Investors are cautiously watching for cues from economic data and central bank speeches to determine the next direction for the currency pair.
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