- The Bank of Japan's cautious approach, indicating that accommodative financial conditions will be maintained for an extended period, fails to assist the Japanese Yen in registering any meaningful recovery from a multi-decade low.
- Japanese government officials continued with their jawboning to defend the domestic currency, which, along with geopolitical developments over the weekend, held back the JPY bears from placing fresh bets and helping limit losses.
- Iran launched explosive drones and missiles at Israel in retaliation for a suspected Israeli attack on its consulate in Syria, raising the risk of a broader conflict in the Middle East region and lending support to the safe-haven JPY.
- Data released from the US last week did little to ease market concerns about still-sticky inflation and forced investors to push back their expectations for the first interest rate cut by the Federal Reserve to September from June.
- Moreover, the current market pricing indicates the possibility of less than two rate cuts in 2024 as against three projected by the Fed, keeping the US Treasury bond yields elevated and acting as a tailwind for the US Dollar.
- The divergent BoJ-Fed policy outlook, meanwhile, suggests that the path of least resistance for the USD/JPY pair remains to the upside and supports prospects for an extension of last week's breakout momentum.
- Traders now look to the US economic docket, featuring Retail Sales figures and the Empire State Manufacturing Index, which, along with Fedspeak, should influence the USD demand and provide a fresh impetus to the major.
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