The Japanese yen continued its recovery against the U.S. dollar on Monday, buoyed by a slight shift in market sentiment. However, analysts warn that the upside potential for the yen appears limited, as monetary policy divergence between Japan and the U.S. remains a key factor.

After a period of sustained weakness, the yen has found support amid renewed demand for safe-haven assets, driven by concerns over global economic uncertainty. Despite this, the Bank of Japan’s ultra-loose monetary policy continues to weigh on the currency’s prospects, particularly as the U.S. Federal Reserve maintains its hawkish stance.

The U.S. dollar’s strength, underpinned by expectations of higher interest rates, is likely to limit further gains for the yen. While the recent rebound has offered some relief to traders, the broader trend suggests that any sustained recovery could be challenging without a significant shift in Japan’s policy outlook.

Market participants are closely watching upcoming economic data from both countries, particularly U.S. inflation figures and any signals from the Bank of Japan regarding possible adjustments to its yield curve control policy. Without a more aggressive stance from the BOJ, the yen may struggle to sustain its recovery in the face of a resilient U.S. dollar.

For now, the yen’s recovery is viewed as short-term, with the broader outlook remaining cautious given the policy dynamics at play.