- USD/JPY struggles to gain any meaningful traction and remains confined in a range.
- A combination of factors underpins the JPY and acts as a headwind for the major.
- The Fed-BoJ policy divergence, relentless USD buying continue to extend support.
The USD/JPY pair extends its consolidative price move and remains confined in the 144.50-145.00 broader trading range through the early European session on Wednesday.
The Bank of Japan July policy meeting minutes released on Wednesday revealed an agreement among policymakers about the need to scrutinize how the yen's recent sharp depreciation could impact inflation. This comes on the back of direct intervention by authorities to stem the rapid fall in the domestic currency and offers some support to the Japanese yen, which, in turn, acts as a headwind for the USD/JPY pair.
The BoJ, however, reiterated its commitment to stick to the ultra-lose policy stance. In contrast, Fed officials struck a more hawkish tone on Tuesday and reaffirmed expectations that the US central bank will hike interest rates at a faster pace to curb stubbornly high inflation. This marks a big Fed-BoJ policy divergence, which continues to undermine the JPY and offers some support to the USD/JPY pair.
The Fed's hawkish outlook, meanwhile, lifts the US dollar to a fresh two-decade high. Adding to this, a further rise in the US Treasury bond yields contributes to the strong bid tone around the greenback and limits the downside for the USD/JPY pair. The fundamental backdrop supports prospects for additional near-term gains, though failure to make it through the 145.00 psychological mark warrants caution.
Market participants now look forward to the release of the US Pending Home Sales data, due later during the early North American session. Traders will further take cues from speeches by influential FOMC members, including Fed Chair Jerome Powell. This, along with the US bond yields, will influence the USD. Apart from this, the broader risk sentiment should provide some impetus to the USD/JPY pair.
Technical levels to watch
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