• USD/JPY kicks off the new week on a subdued note and is influenced by a combination of factors.
  • Intervention fears, looming recession risk benefit the safe-haven JPY and cap gains for the major.
  • The Fed-BoJ policy divergence limits the downside as traders look to the Jackson Hole Symposium.

The USD/JPY pair remains on the defensive for the third straight day on Monday, albeit manages to hold its neck above the 145.00 psychological mark through the Asian session.

Speculations that Japanese authorities might intervene in the foreign exchange market to prop up the domestic currency, along with looming recession risks, continue to lend some support to the safe-haven Japanese Yen (JPY). This, along with subdued US Dollar (USD) price action, is seen as a key factor acting as a headwind for the USD/JPY pair. The downside, however, seems limited, at least for the time being, as traders seem reluctant to place aggressive bets and prefer to wait for fresh cues about the Federal Reserve’s (Fed) future rate hike path.

In fact, the US central bank is anticipated to pause its rate-hiking cycle in September, though the markets have been pricing in the possibility of one more 25 bps lift-off by the end of this year. In fact, the minutes of the July 25-26 FOMC meeting indicated that policymakers continued to prioritize the battle against inflation. Moreover, the incoming stronger US macro data pointed to an extremely resilient economy and should allow the Fed to stick to its hawkish stance. This remains supportive of elevated US Treasury bond yield and favours the USD bulls.

Investors, however, prefer to wait on the sidelines ahead of the crucial Jackson Hole Symposium later this week, where comments by central bankers might infuse significant volatility in the markets and provide some meaningful impetus to the USD/JPY pair. In the meantime, a more dovish stance adopted by the Bank of Japan (BoJ), which is the only central bank in the world to maintain negative interest rates, should undermine the JPY and lend support to the USD/JPY pair, warranting caution before positioning for an extension of the recent pullback from the YTD peak.

Technical levels to watch

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