- USD/JPY continues to draw some support from the divergent Fed-BoJ policy stance.
- Fears that authorities will intervene to support the JPY cap the upside for the major.
- Traders also seem reluctant ahead of the crucial US PCE Price Index data on Friday.
The USD/JPY pair oscillates in a narrow trading range during the Asian session on Wednesday and is currently placed around the 159.70-159.75 region, or just below a nearly two-month peak touched earlier this week. The upside, meanwhile, remains capped amid fears that Japanese authorities or the Bank of Japan (BoJ) might intervene in the markets to prop up the domestic currency.
In fact, Japan's Vice Finance Minister Masato Kanda reiterated that the government is prepared to take appropriate action if excessive currency fluctuations have a negative impact on the national economy. Kanda’s comments, however, had minimal impact on the Japanese Yen (JPY) in the wake of the BoJ's reluctance to provide a detailed plan for the reduction of bond purchases. This marks a big divergence in comparison to the Federal Reserve's (Fed) hawkish stance and suggests that the path of least resistance for the USD/JPY pair is to the upside.
Against the backdrop of the Fed's hawkish pause in June, the recent comments by policymakers indicated that the central bank is not in a rush to start its rate-cutting cycle. Fed Governor Michelle Bowman repeated her view on Tuesday that holding the policy rate steady for some time will likely be enough to bring inflation under control. Fed Governor Lisa Cook said it would be appropriate to cut interest rates "at some point" given significant progress on inflation and a gradual cooling of the labor market, though remained vague about the timing of the easing.
That said, signs of easing inflationary pressures in the US keep hopes alive for the first interest rate cut by the Fed in September. This, in turn, is holding back the USD bulls from placing aggressive bets and capping the upside for the USD/JPY pair. Traders also prefer to move to the sidelines ahead of the final US Q1 GDP print on Thursday, which will be followed by the release of the Personal Consumption Expenditures (PCE) Price Index on Friday. The latter will influence the Fed's future policy decision and determine the near-term trajectory for the currency pair.
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