The Japanese yen continues to lose ground against the strengthening U.S. dollar.

News of a trade agreement between the U.S. and the European Union, reached on Sunday, along with the upcoming meeting between U.S. and Chinese officials to extend the trade truce, is fueling optimism in the markets. These developments are increasing investor interest in risk assets and reducing demand for the safe-haven Japanese yen.

Data released on Friday showed that consumer inflation in Tokyo slowed more than expected in July. Additionally, growing political risks within Japan — especially following the ruling coalition's defeat in the upper house elections — could force the Bank of Japan to delay interest rate hikes, leaving yen supporters on the defensive.

Meanwhile, the U.S. dollar continues to strengthen, pushing the USD/JPY pair higher for the third consecutive day. However, the combination of factors may limit further price gains.

The trade agreement between Japan and the U.S., announced last week, has reduced economic uncertainty in the country and increased the likelihood that the Bank of Japan could resume monetary policy tightening by the end of the year — a factor that may lend support to the yen. Therefore, traders are advised to refrain from opening aggressive positions ahead of upcoming central bank decisions and key macroeconomic releases from the U.S.

The Federal Reserve and the Bank of Japan are set to announce their monetary policy decisions on Wednesday and Thursday, respectively. While current rates are expected to remain unchanged, investors should closely monitor forward guidance, as it will shape the future trajectory of the USD/JPY pair.

Additionally, several important U.S. macroeconomic reports are scheduled this week: the preliminary Q2 GDP on Wednesday, the Personal Consumption Expenditures (PCE) index on Thursday, and the Nonfarm Payrolls report on Friday. These releases are likely to increase volatility in the currency pair during the second half of the week.

From a technical perspective, last week's rebound from levels just below 146.00 and the subsequent move above the 200-hour Simple Moving Average (SMA) can be seen as a key bullish trigger. Along with positive oscillators on the daily and hourly charts, this suggests that the path of least resistance remains to the upside.

A sustained move above the psychological 148.00 level would confirm a constructive outlook, opening the way for a rise toward 148.65. If the bullish momentum continues, the pair could make another attempt at breaking the 149.00 level.

On the other hand, the 200-hour SMA, currently located around 147.65, is providing support for USD/JPY. A drop below that level toward the psychological 147.00 level may present a buying opportunity, with downside limited to the 146.70–146.77 level. Further selling below this area would leave prices vulnerable to an accelerated decline toward 146.00 and lower.