USD/JPY Retreats Amid Volatility, Range-Bound Trading Looms

The USD/JPY pair has retreated from its recent highs, but may soon return to range-bound trading in the short term.

The US dollar found support against the Japanese yen during Asian trading hours on Monday, rising to around 157.75 and partially recovering losses from last Friday's pullback from highs near 159.

The Bank of Japan's July meeting minutes showed that the yen's reaction was relatively limited, with USD/JPY still primarily driven by US dollar movements and changes in the US-Japan interest rate differential.

The policy divergence between the Federal Reserve and the Bank of Japan remains a key driver of exchange rates, with the Fed having raised its target range for the federal funds rate to 3.75%-4.00% in September, while the BOJ increased its policy rate to 1.25%.

The US dollar's resilience is also supported by rising energy prices and expectations of further policy tightening, which have kept US Treasury yields elevated.