USD/JPY remains bearish but remains above 135.00

• The USD/JPY pair was lower on Wednesday, although there was no follow-up selling.
• The dollar hit a new 20-year high and extended some support to the pair.
• The risk-positive tone undermined the safe-haven JPY and also helped limit losses.
• Traders look forward to the FOMC Meeting Minutes before making any directional bets.

The pair USD/JPY it struggled to capitalize on the modest gains posted in the last two sessions and saw some selling on Wednesday. The pair maintained its bid tone during the early American session and was last seen near the daily low around the key psychological level 135.00.

The recent decline in US Treasury yields caused the rate spread between the US and Japan to narrow. This, coupled with rising recession fears, offered support to the safe-haven Japanese yen and put some downward pressure on the USD/JPY pair. The decline could also be attributed to a repositioning operation ahead of the crucial FOMC meeting minutes, due later in the US session.

Fed Chairman Jerome Powell reiterated last week that the US central bank remains focused on reining in inflation and said the US economy is well positioned to handle tighter policy. This, in turn, raised bets for more aggressive rate hikes and continued to support the US dollar. Investors will therefore be looking for clues about the Fed’s tightening path before placing further bets.

Meanwhile, the continuation of the dollar’s recent strong bull run to a new two-decade high should act as a tailwind for the USD/JPY pair amid signs of stability in financial markets. Apart from this, the wide divergence in the policy stance adopted by the Fed and the Bank of Japan favors the prospects for some buying on the downside. This, in turn, warrants bearish traders’ caution.

Technical levels