USDJPY rebounds sluggishly to the mid-147.00s with modest USD strength, but lacks durability

On the first trading day of the new week, the USDJPY attracts some buying in the region of 146.70 and recovers a sizeable chunk of Friday's post-NFP losses. Throughout the beginning of the European session, the pair has maintained a bid tone and is currently hovering near the day high, near the mid-147.00s.

The US Dollar regains its bullish momentum and appears as a major factor supporting the USDJPY pair. Market participants are convinced that the Federal Reserve will retain its tough stance against persistently high inflation despite Friday's mixed employment report. In actuality, the markets continue to price in the possibility of a rate hike of at least 50 basis points in December, which continues to sustain rising US Treasury bond yields and acts as a tailwind for the currency.

In contrast, the Bank of Japan has shown no intention to hike interest rates and has confirmed that 10-year bond yields will remain at 0%. This indicates a substantial divergence between the policy attitudes of the two major central banks and bolsters the USDJPY's potential for further appreciation. Despite this, reports that the Japanese government may intervene once more to avoid a severe collapse in the yen may limit any big increase in market prices amid a softer risk tone.

Concerns of headwinds stemming from China's intention to maintain its economically harmful zero-COVID policy have weakened investor confidence. Aside from this, the protracted Russia-Ukraine conflict has increased investors' fears of a recession and lowered their appetite for riskier assets. This is evident from the gloomy atmosphere that often surrounds equity markets, which tends to bolster the JPY. In the absence of relevant economic data, this may contribute to any further USDJPY gains.

Even from a technical perspective, the recent range-bound price action of the USDJPY pair implies a lack of near-term direction. Traders remain hesitant to place large bets and may prefer to wait until Thursday's release of the most recent US consumer inflation data for a fresh boost. Before positioning for a future increase, it is essential to wait for strong follow-through buying.