• USD/JPY rallies over 100 pips from the daily low, though the intraday uptick lacks follow-through.
• A generally positive risk tone undermines the safe-haven JPY and offers some support to the pair.
• The prevalent USD selling bias keeps a lid on any meaningful gains and warrants caution for bulls.

The USD/JPY pair attracts some dip-buying near the 131.30 area on Monday and hits a fresh daily high during the mid-European session, though lacks follow-through. The pair, however, sticks to a mildly positive tone heading into the North American session and is currently placed around the 132.30 region.

A generally positive tone around the equity markets undermines the safe-haven Japanese Yen and lends some support to the USD/JPY pair. The global risk sentiment gets a lift in the wake of China's biggest pivot away from its strict zero-COVID policy. In fact, China opened its borders over the weekend for the first time in three years, though worries about a deeper global economic downturn keep a lid on any further optimism.

Apart from this, the prevalent US Dollar selling bias, amid rising bets for a less aggressive policy tightening by the Fed, acts as a headwind for the USD/JPY pair. Friday's mixed US jobs report (NFP) and the disappointing release of the US ISM Services PMI fueled speculations that the US central bank will soften its hawkish stance. Moreover, the markets are now pricing in 25 bps at the next FOMC policy meeting in February.

Apart from this, the recent reports that the Bank of Japan (BoJ) plans to raise its inflation forecasts could lend support to the JPY and contribute to capping the USD/JPY pair. This, in turn, suggests that the path of least resistance for spot prices is to the downside. Hence, attempted recovery could be seen as a selling opportunity and remain capped, at least for the time being, in the absence of any relevant macro data from the US.

Technical levels to watch