USD/JPY bulls are in control as the week commences, supported by favorable risk sentiment, a steeper Treasury yield curve and broad dollar strength after U.S. elections and last week’s Fed policy meeting.

The recent slump in oil may underpin risk taking and the dollar in the short-term by boosting U.S. real incomes.

Oil's drop loosens U.S. financial conditions at a time when the labor market remains tight and the Fed is focused on controlling services inflation. While odds of a 25 basis point Fed cut next month, at around 85%, are a near certainty, according to the LSEG’s interest rate probability calculations, rising incomes may limit Fed accommodation in 2025.

Additionally, concerns that President-elect Trump may introduce tariffs on imports once he takes office in January could temper rate cut expectations.

The drop in oil may also have dovish implications for the Bank of Japan. One reason why the Japanese central bank hiked in July was to address rising imported inflation.

With commodity prices under pressure due to a stronger dollar, weak China growth and the prospect of more U.S. oil supply, the cost of these imports in yen terms is declining. BOJ officials may also want to assess the budget polices of the new government before rushing into more tightening.

Technically, USD/JPY's 21-DMA, currently 151.91, has crossed above its 200-DMA of 151.71, a bullish development. Closing above last week's double-top at 154.71 could see prices accelerate upwards. For more click on

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(Robert Fullem is a Reuters market analyst. The views expressed are his own.)

((robert.fullem@thomsonreuters.com;))