USD/JPY: Upside Risks Ahead

The USD/JPY pair is extending gains on Tuesday with the price has refreshed a one-month high of 113.44 before a partial retracement. The risk-on sentiment is prevailing in the global financial markets, which caps the safe haven yen demand.

Investors are rather cautious ahead of midterm elections in the US. The base case scenario implies that Republicans retain a majority in the Senate while with Democrats reclaim control of the House of Representatives. As history shows, such an outcome could bode well for stocks and riskier assets. As such, risk appetite could improve following the elections and thus put the Japanese yen under a more intense downside pressure.

And let’s not forget that the two-day FOMC meeting that concludes on Thursday could fuel USD demand. Despite the central bank is not expected to hike rates in November, the buck could be well inspired by confirmation of the tightening path against the backdrop of still solid fundamentals.

As such, the pair still has a chance to challenge the 114.00 threshold should the upcoming events play in favor of the greenback.

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