USD/JPY struggles to capitalize on modest intraday gains, rising slightly to mid-142.00s

• USD/JPY starts the new week on a positive note and blocks Friday’s pullback from a multi-week high.
• Upbeat market sentiment, Japanese politics and mixed data from Japan undermine the safe-haven JPY.
• Divergent BoJ-Fed policy expectations keep a lid on any further appreciation movement for the pair.

USD/JPY is attracting some buyers at the start of a new week and reversing some of Friday’s sharp pullback slide from the 146.50 area or above a three-week high. Spot prices, however, are down a few pips in the last hour and are currently trading in the mid-142.00s, up less than 0.25% on the day.

The already upbeat market mood gets a further boost in reaction to more stimulus announced by China over the weekend. In fact, the People’s Bank of China (PBOC) said on Sunday that it will tell banks to lower mortgage rates on existing home loans. In addition, incoming Japanese Prime Minister Shigeru Ishiba said the Bank of Japan’s (BoJ) monetary policy must remain accommodative to support a fragile economic recovery. This, along with news that the new PMI is planning a general election for October 27 and mixed Japanese economic data, is undermining the Japanese Yen (JPY) and is seen as providing support to the USD/JPY pair.

A government report released earlier today showed that retail sales in Japan rose 2.8 percent in August from a year earlier, compared with market expectations for a 2.3 percent rise and 2.7 percent growth recorded in the previous month. However, this was offset by poor industrial production data, which contracted more than expected by 3.3% during the reported month and did little to impress the JPY bulls. That said, the market’s growing belief that the BoJ will raise interest rates again by the end of this year is helping to limit any significant losses in the JPY. Apart from this, subdued US dollar (USD) price action is helping to cap the USD/JPY pair.

The USD index (DXY), which tracks the greenback against a basket of currencies, remains near its lowest level since July 2023, hit on Friday amid bets for more aggressive policy easing by the Federal Reserve (Fed). This, in turn, calls for some caution before positioning for a new intraday appreciation move for the USD/JPY pair. Traders are now awaiting the release of official Chinese PMI prints for a boost. The focus, however, will be on Fed Chairman Jerome Powell’s speech later in the US session.