USD/JPY retreats from over one-week high, slides back below 145.00 mark

• A combination of factors fails to assist USD/JPY to capitalize on early gains to over a one-week top.
• Fears of intervention by the Japanese government extend support to the JPY and caps the pair.
• A softer tone around the US bond yields undermines the USD and attracts sellers at higher levels.

The USD/JPY pair trims a part of its modest intraday gains to over a one-week high and quickly retreats to sub-145.00 levels during the early European session.

Japan's finance minister Shunichi Suzuki said on Monday that the government stands ready to intervene in currency markets to prevent deeper losses in the domestic currency. This, along with the prevalent cautious market mood, offers some support to the safe-haven Japanese yen and caps the upside for the USD/JPY pair.

Bearish traders further take cues from a softer tone surrounding the US Treasury bond yields, which fails to assist the US dollar to capitalize on its early positive move. This further exerts some pressure on the USD/JPY pair, though a combination of factors should help limit any meaningful slide, at least for the time being.

A big divergence in the monetary policy stance adopted by the Bank of Japan and other major central banks might continue to weigh on the JPY. It is worth mentioning that the BoJ has been lagging behind other major central banks in the process of policy normalisation and remains committed to continuing with its monetary easing.

In contrast, the US central bank is expected to stick to its aggressive policy tightening path to curb high inflation. In fact, the markets have been pricing in the possibility of another supersized 75 bps Fed rate hike move in November. This, in turn, is likely to act as a tailwind for the US bond yields and the greenback.

The fundamental backdrop suggests that the path of least resistance for the USD/JPY pair is to the upside and any meaningful slide might still be seen as a buying opportunity. That said, traders might prefer to wait for the release of key US macro releases scheduled at the beginning of a new month, including the NFP report.

A rather busy week kicks off with the release of the US ISM Manufacturing PMI, due later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics. Apart from this, the broader market risk sentiment should provide some meaningful impetus to the USD/JPY pair.

Technical levels to watch