USDJPY slowly returns to the mid-147.00s amidst minor USD strength, but lacks persistence

On the first trading day of the new week, the USDJPY draws some buying at the 146.70 area and recovers a significant portion of Friday's post-NFP losses. Throughout the early European session, the pair continues its bid tone and is currently hovering near the daily high, at mid-147.00s.

The US Dollar regains bullish momentum and emerges as a significant driver supporting the USDJPY pair. Despite Friday's mixed employment report, market players remain confident that the Federal Reserve will maintain its aggressive posture to confront persistently high inflation. In reality, the markets continue to price in the potential of a rate hike of at least 50 basis points in December, which remains supportive of elevated US Treasury bond yields and acts as a tailwind for the dollar.

In contrast, the Bank of Japan has shown no inclination to increase interest rates and has reaffirmed that it will continue to keep the return on 10-year bonds at 0%. This signifies a significant gap between the policy stances of the two major central banks and bolsters the potential for the USDJPY to appreciate further. In spite of this, rumors that the Japanese government may intervene again to prevent a sharp decline in the yen might limit any significant rise in market prices amid a softer risk tone.

Concerns about headwinds arising from China's determination to retain its economically damaging zero-COVID policy have kept market confidence weak. Aside from this, the extended Russia-Ukraine conflict has fueled fears of a recession and dampened investors' desire for risky assets. This is clear from the typically pessimistic sentiment surrounding equity markets, which tends to support the JPY. In the lack of pertinent economic data, this may contribute to any additional rises in the USDJPY pair.

Even from a technical standpoint, the USDJPY pair's recent range-bound price activity indicates a lack of near-term direction. Traders appear reluctant to put big wagers and may prefer to wait until Thursday's release of the latest US consumer inflation data for a fresh impetus. Before positioning for a further appreciation, it is important to await substantial follow-through buying.