USD/JPY retakes 134.00 mark and beyond, eyes weekly high set on Wednesday

• USD/JPY attracts some dip-buying on Thursday and turns positive for the third straight day.
• The Fed-BoJ policy divergence continues to weigh on the JPY and offers support to the pair.
• Sliding US bond yields keep the USD bulls on the defensive and might cap any further gains.

The USD/JPY pair reverses an intraday dip to the 133.40 area and turns positive for the third straight day on Thursday. Spot prices climb back above the 134.00 mark during the early European session, with bulls now eyeing a move towards the weekly high touched the previous day.

A big divergence in the monetary policy stance adopted by the Federal Reserve and the Bank of Japan continues to weigh on the Japanese yen, which, in turn, acts as a tailwind for the USD/JPY pair. It is worth recalling that several Fed officials hinted this week that more interest rates are coming in the near term. In contrast, the BoJ has repeatedly called to stick to its ultra-easy policy settings and its commitment to keep the 10-year Japanese government bond yield around 0%.

The USD/JPY pair uptick, however, seems limited amid the ongoing decline in the US Treasury bond yields, which keeps the US dollar bulls on the defensive. Apart from this, the cautious mood around the equity markets could lend some support to the safe-haven JPY and further contribute to capping any meaningful upside for the USD/JPY pair, at least for the time being. This makes it prudent to wait for strong follow-through buying before positioning for any further appreciating move.

Thursday's key focus would remain on the Bank of England monetary policy decision, which could infuse some volatility in the markets and provide some impetus to the USD/JPY pair. Traders will further take cues from the release of the usual Weekly Initial Jobless Claims data from the US, due later during the early North American session. This, along with the US bond yields and Fedspeak, might influence the USD price dynamics and allow traders to grab short-term opportunities.

Technical levels to watch