USD/JPY holds on to modest intraday gains above 137.00, focus on US CPI.

• A combination of factors help USD/JPY regain positive traction on Wednesday.
• The divergence between the monetary policies of the Fed and the Bank of Japan, along with the positive risk tone, weigh on the safe-haven JPY.
• Investors await the US CPI report for further directional momentum.

The pair USD/JPY attracts new purchases on Wednesday and recovers part of the corrective losses of the previous day. The pair maintains its modest intraday gains at the start of the European session and is now trading just above the round level of 137.00.

The slight improvement in risk sentiment, reflected in a modest rebound in equity markets, weighed on demand for traditional safe-haven assets. This, together with the divergence of the monetary policy adopted by the Bank of Japan and the Federal Reservehelped the USD/JPY pair regain some positive traction.

It is worth mentioning that the BoJ Governor, Haruhiko Kuroda reiterated on Monday that the central bank remains ready to take additional monetary easing measures if necessary.. In contrast, the surprisingly hawkish FOMC meeting minutes released last week indicated that another rate hike of 50 or 75 basis points was likely at the July meeting.

Those responsible for monetary policy also emphasized the need to fight inflation, even if this translates into an economic slowdown. Therefore, the markets’ attention will remain focused on the release of the latest CPI consumer inflation data in the US, to be published later at the start of today’s American session. Headline CPI is expected to rise from 8.6% yoy rate in May to 8.8% yoy in June.

Stronger-than-expected US CPI data will bolster market expectations that the Fed will maintain its faster policy tightening. This would be enough to trigger a further move higher in US Treasury yields and boost the USD, supporting prospects for an extension of the recent USD/JPY bull run.

USD/JPY technical levels