Bullish Momentum Continues for USD/JPY Pair

The USD/JPY pair has been on a steady rise, building on its overnight goodish rebound from the 133.75 region, which was a one-week low. For the second successive day on Friday, it has gained some follow-through traction, maintaining its bid tone through the early part of the European session and currently placed around the 134.70 region, up over 0.20% for the day.

The equity markets have a generally positive tone, and the Bank of Japan's (BoJ) dovish outlook is undermining the safe-haven Japanese Yen (JPY) and turning out to be a key factor acting as a tailwind for the USD/JPY pair. The BoJ Governor Kazuo Ueda, speaking in parliament earlier this week, said that it was too early to discuss specific plans for an exit from the massive stimulus programme.

In contrast, the US Dollar (USD) reverses a modest intraday dip and stands tall near a one-and-half-week high touched on Thursday, which lends additional support to the USD/JPY pair. The uncertainty over the Federal Reserve's (Fed) next policy move, along with a modest uptick in the US Treasury bond yields, continue to underpin the Greenback, though the US debt ceiling concerns act as a headwind.

The US CPI report released earlier this week pointed to signs of easing inflationary pressure and reaffirmed market expectations about an imminent pause in the Fed's year-long rate-hiking cycle. However, investors remain divided over the possibility of rate cuts later this year. This, in turn, holds back the USD bulls from placing aggressive bets and might keep a lid on any meaningful upside for the USD/JPY pair, at least for now.

Market participants now look forward to the release of the Preliminary Michigan Consumer Sentiment Index from the US, due later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the USD/JPY pair. Apart from this, traders will take cues from the broader risk sentiment to grab short-term opportunities on the last day of the week.

From a technical perspective, the price of the USD/JPY pair may reach the 137.000 area or even go up to 138.000 before seeing a retracement. The current bullish trend of the pair seems to be supported by the positive market sentiment and the dovish stance of the Bank of Japan, as well as the uncertainty over the Fed's next policy move. However, the possibility of rate cuts later this year and the US debt ceiling concerns may limit the USD bulls' aggression, preventing a significant upside for the USD/JPY pair. Overall, the short-term opportunities in the USD/JPY pair will depend on the broader market sentiment and the release of key economic indicators.

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