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- USD/JPY edges up following a modest bearish gap opening on Monday amid some USD dip-buying.
- Rising Iran tensions and reviving Fed rate hike bets turn out to be key factors supporting the buck.
- Intervention fears might keep the JPY bears on the back foot and cap the upside for spot prices.
The USD/JPY pair attracts some dip-buyers following a modest Asian session downtick to the 156.60 region on Monday. Spot prices climb to the 157.00 mark in the last hour, though it lacks follow-through, warranting caution before positioning for an extension of Friday’s goodish recovery from the 155.50-155.45 area, or the lowest level since February 25.
Renewed concerns about the risk of a further escalation of tensions in the Middle East assist the safe-haven US Dollar (USD) to fill a modest bearish gap, which, in turn, acts as a tailwind for the USD/JPY pair. US President Donald Trump announced that the US will begin guiding neutral ships out of the Strait of Hormuz under an operation called Project Freedom and added that if this process is disrupted, we will deal with it by force. In response, Ebrahim Azizi, head of the Iranian parliament’s National Security Commission, issued a formal warning that any US interference in the strategic waterway would constitute a ceasefire violation.
Meanwhile, Minneapolis Federal Reserve (Fed) President Neel Kashkari said on Sunday that a prolonged Iran conflict increases inflation risks and economic damage. Moreover, Kashkari raised the possibility of moving rates higher, citing uncertainty around all aspects of the war. This further underpins the Greenback and lends support to the USD/JPY pair. However, reports that Japanese authorities likely intervened around May 1, spending approximately ¥5.4 trillion ($34.5 billion) to prop up the weak domestic currency, might hold back bears from placing fresh bets around the Japanese Yen (JPY). This should keep a lid on the currency pair.
Moving ahead, there isn’t any relevant market-moving economic data due for release from the US on Monday, leaving the buck and the USD/JPY pair at the mercy of fresh developments surrounding the Middle East crisis. The aforementioned fundamental backdrop, however, makes it prudent to wait for strong follow-through buying before confirming that spot prices have formed a near-term bottom and positioning for any meaningful upside.
