USD/JPY consolidates in a range around 150.00, modest USD strength lends support

The USD/JPY pair struggles to capitalize on the previous day’s positive move and seesaws between tepid gains/minor losses during the Asian session on Tuesday. Spot prices currently trade just above the 150.00 psychological mark and draw support from some follow-through US Dollar (USD) buying.

The USD uptick could be attributed to some repositioning trade ahead of speeches by influential FOMC members, including Federal Reserve (Fed) Chair Jerome Powell, which might provide fresh cues about the future rate hike path. Investors seem convinced that the US central bank is nearing the end of its policy-tightening campaign and might start cutting rates in June 2024. The bets were lifted by weaker-than-expected US jobs report released on Friday, though the overnight comments by Fed officials offered mixed signals about the next policy move.

In fact, Fed Governor Lisa Cook noted that the central bank's current target interest rate is adequate to return inflation to the Fed's 2% target. Cook added that we will continue to be vigilant to ensure that the inflation target is reached. Minneapolis Fed President Neel Kashkari, meanwhile, said that the US economy has proved to be very resilient and under-tightening will not get us back to 2% in a reasonable time. This led to a goodish recovery in the US Treasury bond yields, which, in turn, is seen acting as a tailwind for the Greenback and the USD/JPY pair.

The Japanese Yen (JPY), on the other hand, is undermined by a more dovish stance adopted by the Bank of Japan (BoJ). In fact, BoJ Governor Kazuo Ueda said on Monday that the likelihood of achieving the 2% inflation target was increasing, but the progress is not enough to end the ultra-loose monetary policy. This comes on top of the BoJ's minor change to its yield curve control (YCC) policy last week, which pointed to a slow move towards exiting the decade-long accommodative monetary policy settings and continues to weigh on JPY.

The upside for the USD/JPY pair, however, seems limited in the wake of speculations that Japanese authorities will intervene in the FX market to combat a sustained depreciation in the domestic currency. This, in turn, warrants some caution for aggressive bullish traders and positioning for any meaningful intraday appreciating move. In the absence of any relevant market-moving economic releases from the US, comments by Fed officials will play a key role in influencing the USD price dynamics and provide some meaningful impetus to the major.

Technical levels to watch