• USD/JPY gains some positive traction on Monday, albeit struggles to capitalize on the move.
• The divergent BoJ-Fed policy expectations turn out to be a key factor capping further gains.
• A positive risk tone undermines the safe-haven JPY and could lend some support to the pair.

The USD/JPY pair struggles to capitalize on its modest Asian session uptick to the 148.00 mark and drops to a fresh daily low in the last hour. Spot prices currently trade just below mid-147.00s and seem vulnerable to prolong Friday’s retracement slide from a two-week top. 

The prevalent risk-on mood, bolstered by signs of easing fears of a recession in the US, undermines the safe-haven Japanese Yen (JPY) and lends some support to the USD/JPY pair amid a modest US Dollar (USD) uptick. That said, rising geopolitical tensions in the Middle East keep a lid on the optimism in the markets. Furthermore, the divergent Bank of Japan (BoJ)-Federal Reserve (Fed) policy expectations keep a lid on any meaningful upside for the currency pair. 

Investors seem convinced that Thursday's stronger second-quarter Gross Domestic Product (GDP) print released from Japan could encourage the Bank of Japan (BoJ) to continue raising interest rates. In contrast, the US central bank is all but certain to begin its policy-easing cycle in September. The bets were reaffirmed by San Francisco Fed President Mary Daly's remarks that the US central bank needs to take a gradual approach to lowering borrowing costs.