USD/JPY nears 151.50 zone amid modest dollar strength, but lacks follow-through

• USD/JPY attracts some buying at lower levels and turns positive for the second day in a row on Thursday.
• The BoJ’s dovish stance weighs on the JPY and acts as a tailwind for the pair amid further USD recovery.
• Expectations that the Fed is done raising rates could cap the USD and the pair amid intervention fears.

The USD/JPY pair turns positive for the second day in a row on Thursday, following an intraday drop to the 151.10 area, and hits two-day highs during the early part of the European session. However, the pair lacks follow-through buying and remains below the 151.50 level.

The Japanese Yen (JPY) continues its relative underperformance following a more dovish stance taken by the Bank of Japan (BoJ), which, together with some strength in the US Dollar (USD), acts as a tailwind for the USD/JPY pair. In fact, the BoJ is the only major central bank that maintains negative interest rates and is in no rush to change its massive monetary easing policy.

By contrast, Wednesday’s release of better-than-expected US retail sales data suggests the economy remains on track for a soft landing. This could allow the Federal Reserve (Fed) to maintain its hawkish stance and wait longer before cutting rates, which continues to support the Dollar and turns out to be another factor supporting the USD/JPY pair for the second day in a row.

Market participants, meanwhile, appear convinced that the Fed will not raise interest rates again and have been pricing in the possibility of rate cuts during the first half of 2024. This is reinforced by a further decline in yields. of US Treasuries, which, in turn, could stop USD bulls from opening aggressive positions. On the other hand, a softer risk tone could benefit the safe-haven Japanese Yen and limit the USD/JPY pair.

Traders are also skeptical about the possibility of intervention by the Japanese authorities to combat any sustained depreciation of the national currency. This further helps keep the USD/JPY pair in check, warranting caution before positioning for any further appreciating moves. Investors are looking forward to US macroeconomic data for fresh impetus later during today’s American session.

Weekly jobless claims, the Philadelphia Fed manufacturing index and industrial production will be released on Thursday’s agenda. Additionally, US bond yields will boost demand for the Dollar. Traders will follow the speeches of influential FOMC members and the overall risk sentiment to take advantage of some short-term opportunities around the USD/JPY pair.

Technical levels to monitor