USD/JPY extends pullback from yearly highs, remains above 136.00 level

• USD/JPY is in some selling on Thursday and is pressured by a combination of factors.
• Recession fears benefit the safe-haven JPY and weigh on the pair amid a modest decline in the USD.
• The policy divergence between the Fed and the Bank of Japan favors the pair’s bulls and should help limit any significant decline.

He USD/JPY comes under some selling pressure on Thursday and moves away from its highest level since mid-December, around the 137.90 area touched the previous day. The pair extends its intraday decline during the first half of the European session and falls to a new daily low, around the 136.15 region at the time of writing.

Fears of a deeper global economic recession continue to weigh on investor sentiment, which in turn Benefits Safe-Haven Japanese Yen (JPY) and drags the USD/JPY pair lower. The concern was seen fueled by Chinese inflation figurespublished early this Thursday, which showed that domestic demand remains weak and dashed hopes of a strong recovery in the world’s second-largest economy. This, along with a modest dollar pullback from a three-month high, contributes to the sell bias surrounding the pair.

However, USD/JPY downside more likely to remain limitedat least for the moment, in amid expectations that the Bank of Japan (BoJ) will maintain its ultra-loose stance to support the fragile national economy. These expectations were confirmed by the publication of the final GDP data, which pointed to a continuation of the weakness of the economy. On the other hand, the new BoJ governor, Kazuo Ueda, recently stressed the need to keep the policy ultra-loose, stating that the central bank does not intend to move quickly away from a decade of massive easing.

By contrast, the Federal Reserve Chairman, Jerome Powell reiterated on Wednesday that interest rates would have to rise and possibly faster to control stubbornly high inflation. In fact, markets are now pricing in a higher probability of a 50 basis point hike at the next FOMC meeting on March 21-21, which continues to support elevated US Treasury yields. in turn, favors USD bulls and supports prospects for some buying at lower levels around USD/JPYwhich warrants caution before positioning for any significant corrective decline.

Market participants now look to the US economic calendar, with the release of the Challenger job cuts and the usual initial weekly jobless claims later in the American session. However, attention will remain focused on the BoJ’s monetary policy decision, which will be announced during the Asian session on Friday. Following is the monthly US employment data, popularly known as the NFP report, which should help investors determine the next directional move for the USD/JPY pair.

USD/JPY technical levels to watch