USD/JPY climbs as improved risk appetite, firm US Dollar weigh on Yen

• USD/JPY climbs as risk-on sentiment and a firm US Dollar weigh on the safe-haven Yen.
• Monetary policy divergence and interest rate differentials remain in focus ahead of Fed and BoJ decisions.
• USD/JPY heads toward 148.00 resistance as bullish momentum builds

The Japanese Yen (JPY) is weakening against the US Dollar (USD) on Friday as risk-on sentiment and widening interest rate differentials continue to pressure the Yen. 

At the time of writing, USD/JPY is trading back above 147.00, with the June swing high at 148.03 acting as immediate resistance.

Monetary policy divergence and interest rate differentials remain in focus ahead of Federal Reserve (Fed) and Bank of Japan (BoJ) decisions

With both the BoJ and the Fed scheduled to hold policy meetings next week, interest rate differentials remain a key driver for USD/JPY.

Traders continue to favor the USD as the Fed maintains a higher-for-longer stance, while the BoJ remains cautious amid signs of stabilizing inflation.

Japan's July Tokyo Consumer Price Index (CPI), released Thursday, came in slightly softer than expected, with headline and core inflation easing to 2.9% from 3.1%.

The data suggests that inflationary pressure may be leveling off, which could give the BoJ further justification to delay any near-term policy tightening.

The figures supported USD/JPY as the divergence in policy outlook between Japan and the US continues to widen.

Meanwhile, markets are also digesting Friday's US Durable Goods Orders for June, a key gauge of business investment.

Although the headline figure showed a steep monthly decline of 9.3%, markets had already anticipated a sharp correction following May's outsized 16.5% gain. The fact that the decline was less severe than expected helped cushion investor reaction.

USD/JPY heads toward 148.00 resistance as bullish momentum builds

USD/JPY is climbing after rebounding from the 38.2% Fibonacci retracement of the January-April decline at 147.14, with buyers now targeting the 148.03 resistance zone. The pair remains above the 50-day Simple Moving Average (SMA) at 145.23, reinforcing bullish momentum.

USD/JPY daily chart

If 148.00 is breached, the next upside level sits at the 50% retracement near 149.38. On the downside, initial support is seen at 145.75, followed by the 23.6% retracement at 144.37.

The Relative Strength Index (RSI) has firmed to 57, suggesting there's room for further gains before entering overbought territory.