Ella 
The yen continued to struggle on Monday, failing to gain significant momentum and consolidating for a second day in a row, staying just below last week’s multi-month lows. Recent economic data showed that Japan’s economy unexpectedly entered a technical recession, which heightened market expectations that the Bank of Japan (BoJ) will delay its exit from the ultra-loose monetary policy mechanism. This, coupled with the maintenance of underlying bullish sentiment in global stock markets, continues to weigh on the safe-haven value of the yen.
Additionally, a growing number of investors believe the Federal Reserve (Fed) will keep interest rates higher for longer, boosting the U.S. dollar (USD) to hold above the multi-week lows hit last Thursday and forming a /JPY bullish factors. The market has pushed back the start of interest rate cuts by the Federal Reserve to June and has returned to expectations of three 25 basis point interest rate cuts by the Fed this year, which still boosts U.S. bond yields. The resulting widening of the U.S.-Japan bond interest rate differential may also hinder the yen’s rebound.
However, upside potential for USD/JPY appears limited amid speculation that Japanese authorities will intervene in the market to support the yen. Traders may also prefer to wait for key U.S. macro data this week, including the core PCE price index, for signals on the Fed’s future policy decisions, which will impact dollar volatility and provide directional momentum for USD/JPY. However, the above fundamental backdrop suggests that upside resistance to USD/JPY remains minimal.
