USD/JPY remains below 141.50 amid modest dollar weakness ahead of FOMC minutes

• USD/JPY attracts some buying on Wednesday, though the rally lacks bullish conviction.
• Expectations for less aggressive rate hikes continue to weigh on the USD and limit the pair’s gains.
• The fall seems limited amid the policy divergence between the Fed and the BOJ, ahead of the FOMC minutes.

The pair USD/JPY reverses an intraday slide to levels below 141.00 and bounces more than 50 pips from the daily low. However, the pair finds it difficult to take advantage of the movement and meets fresh selling near the 141.50 level amid some selling around the US dollar.

Despite recent hawkish comments from several Fed officials, investors seem convinced that the US central bank will slow the pace of its tightening. In fact, current market valuation indicates a higher probability of a relatively minor rate hike of 50 basis points at the next FOMC policy meeting in December. This, in turn, has been a key factor in the recent pullback in US Treasury yields and continues to act as a headwind for the USD.

Nevertheless, the Fed is still far from interrupting its rate-raising cycle and is expected to continue raising borrowing costs to curb inflation. This should limit the fall in US bond yields and provide some support for the dollar. Therefore, the market’s attention will remain focused on the release of the November FOMC meeting minutes, which will be released later in the American session. Investors will look for clues about future rate hikes, which will influence near-term dollar price dynamics.

In the meantime, a more dovish stance taken by the Bank of Japan (BoJ), coupled with signs of stability in stock markets, could weigh on the Japanese yen of safe haven and offer support to the USD/JPY pair. In fact, the BoJ has, so far, shown no inclination to raise interest rates. In addition, BoJ Governor Haruhiko Kuroda reiterated last week that the central bank will maintain its monetary easing to support the economy and achieve the 2% inflation target on a stable basis.

This marks a large divergence compared to the Fed and supports the prospects for some buying around USD/JPY at lower levels. Even from a technical perspective, Monday’s sustained move above the resistance of the 100-day SMA, around the 141.00 level, confirmed a break through the one-week range. This adds credibility to the positive outlook and warrants some caution before positioning for any significant depreciation move, at least for now.

USD/JPY technical levels