• USD/JPY scales higher for the third successive day and climbs to over a one-week high on Monday.
• A modest USD downtick exerts some pressure on the pair, though the downside seems cushioned.
• The divergent Fed-BoJ policy outlook, a positive risk tone underpin the JPY and lend some support.

The USD/JPY pair surrenders a major part of its intraday gains to over a one-week high, around the 136.30-136.35 area touched this Monday and retreats to the 136.00 mark during the early North American session.

The US Dollar (USD) pulls back from its highest level since April and turns out to be a key factor acting as a headwind for the USD/JPY pair. That said, fresh speculations that the Federal Reserve (Fed) will stick to its hawkish stance in the wake of a rise in consumer inflation expectations should help limit the downside for the USD. This, in turn, warrants caution for bears and before positioning for any further downfall for the major.

The preliminary May reading from the University of Michigan released on Friday showed that consumers see prices over the next five years climbing at an annual rate of 3.2%  - the highest since 2011. This, in turn, fuels speculations that the Federal Reserve (Fed) will keep interest rates higher for longer, which remains supportive of a further rise in the US Treasury bond yields and should act as a tailwind for the Greenback.

Apart from this, the Bank of Japan's (BoJ) dovish outlook, along with a generally positive risk tone around the equity markets, could undermine the safe-haven Japanese Yen (JPY) and contribute to limiting the downside for the USD/JPY pair. It is worth recalling that BoJ Governor Kazuo Ueda, speaking in parliament last week, said last week that it was too early to discuss specific plans for an exit from the massive stimulus program.

On the economic data front, the Empire State Manufacturing Index plunged to -31.8 in May from 10.8 in the previous month, albeit does little to influence the USD price dynamics or provide any meaningful impetus to the major. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the USD/JPY pair is to the upside and the intraday pullback might still be seen as a buying opportunity.

Technical levels to watch