• USD/JPY gains strong positive traction on Tuesday and is supported by a combination of factors.
• Hawkish Fed expectations, rising US bond yields continue to underpin the USD and act as a tailwind.
• The Fed-BoJ policy divergence weighs on the JPY, though recession fears could limit deeper losses.
• Investors might also prefer to wait for the release of the key FOMC meeting minutes on Wednesday.

The USD/JPY pair builds on its intraday positive move and climbs to the 134.65-134.70 area, or a four-day high during the early North American session.

The US dollar is prolonging its recovery from over a one-month low touched in the aftermath of the softer US CPI report and gaining traction for the third successive day on Tuesday. The momentum pushes the buck to a fresh monthly peak and acts as a tailwind for the USD/JPY pair.

The recent hawkish remarks by several Fed officials suggest that the US central bank would stick to its policy tightening path. This, along with a pickup in the US Treasury bond yields, continues to underpin the USD and remain supportive of the USD/JPY pair's strong move up.

Apart from this, a big divergence in the Fed-Bank of Japan (BoJ) monetary policy stance is driving flows away from the Japanese yen and providing an additional lift to spot prices. It is worth recalling that the BoJ has repeatedly said that it would retain its ultra-easy policy settings.

That said, the prevalent cautious market mood - amid growing worries about a global economic downturn - extends some support to the safe-haven JPY. This might turn out to be the only factor that might hold back bulls from placing fresh bets and cap any further gains for the USD/JPY pair.

Traders might also prefer to move on the sidelines ahead of the FOMC minutes, scheduled for release on Wednesday. Investors would look for clues about the possibility of a 75 bps rate hike in September, which would influence the USD and provide a fresh directional impetus to the USD/JPY pair.

Technical levels to watch