- USD/JPY fell Thursday amid a modest dollar pullback from two-decade highs.
- The risk-positive tone undermined the JPY haven and acted as a tailwind for the pair.
- The divergence between the policy of the Fed and the Bank of Japan favors the appearance of downward purchases.
The pair USD/JPY attracted some selling on Thursday and pulled back nearly 70 pips from the daily high around the 136.20 area. The pair remained on the defensive during the early North American session and was last seen near the lower end of its intraday trading range just above 135.50.
Following the recent strong bull run to a 20-year high, modest dollar profit-taking proved to be a key factor putting downward pressure on the USD/JPY pair. However, the downside remains muted amid a recovery in risk sentiment, which tends to undermine the safe haven of the Japanese yen.
Reports indicated that China is considering a $220 billion fiscal stimulus program in the second half of 2022 to shake off the ongoing housing crisis and revive consumer demand in the economy. This boosted investor sentiment, which was reflected in a generally positive tone around equity markets.
Apart from this, the divergent monetary policy stance adopted by the Federal Reserve and the Bank of Japan supports the prospect of some buying around the USD/JPY pair. In fact, the minutes from the June FOMC meeting indicate that another rate hike of 50 or 75 basis points is likely at the July meeting.
Instead, the Bank of Japan is expected to maintain its ultra-low interest rate policy at its next meeting this month. Meanwhile, the prospect of more aggressive policy tightening by the Fed, coupled with reduced safe-haven demand, pushed up US Treasury yields, further validating the outlook. positive.
Turning to economic data, weekly jobless claims unexpectedly rose to 235,000 for the week ending July 1, versus 230,000 expected. The data failed to provide a significant boost to the USD/JPY pair, although the fundamental backdrop seems to be tilting in favor of the bullish traders.
Technical levels
Source: Fx Street
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