USD/JPY Eases From Three-Day High Amid Weaker USD, Up A Little Around 135.00 Mark

The USD/JPY pair builds on Friday’s positive move and gains some follow-through traction on the first day of a new week, albeit it lacks follow-through buying. Spot prices retreat a few pips from a three-day top and trade around the 135.00 psychological mark during the early part of the European session.

The minutes of the last Bank of Japan (BoJ) policy meeting held on March 9-10 showed that members supported the continuation of policy easing to achieve steady inflation. Apart from this, a generally positive risk tone undermines the safe-haven Japanese Yen (JPY) and acts as a tailwind for the USD/JPY pair. Some BoJ policymakers, meanwhile, saw positive signs towards achieving the price target and said that the central bank must be vigilant to the risk of inflation accelerating more than expected. This, along with a modest US Dollar (USD), keeps a lid on any meaningful upside for the major, at least for now.

The USD Index (DXY), which tracks the Greenback against a basket of currencies, languishes near the monthly low amid growing acceptance that the Federal Reserve (Fed) is approaching the end of its rate-hiking cycles. Moreover, the markets have been pricing in the possibility that the Fed will cut interest rates during the second half of this year amid signs that the economy is slowing. This, along with concerns about the US banking sector and the debt ceiling, drags the US Treasury bond yields lower and weighs on the buck, which, in turn, acts as a headwind for the USD/JPY pair and warrants caution for bulls.

No relevant market-moving economic data is due for release from the US on Monday, leaving the USD at the mercy of the US bond yields. The broader risk sentiment might also allow traders to grab short-term opportunities around the USD/JPY pair. The focus, however, will remain glued to the latest US consumer inflation figures, due on Wednesday. The crucial US CPI report will play a key role in influencing the Fed’s future interest rate decisions, which should help drive the USD demand in the near term and help investors to determine the next leg of a directional move for the major.

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