- USD/JPY was seen to consolidate its recent strong gains to the highest level since January 2017.
- Strong intraday USD selling capped the uptrend amid extreme overbought conditions.
- Risk appetite undermined the JPY as a safe haven and provided support amid elevated US bond yields.
- The market’s focus remains glued to the outcome of a two-day FOMC monetary policy meeting.
The pair USD/JPY struggled to gain significant traction and remained confined to a range just below the multi-year high around the 118.30 region during the early American session.
The pair witnessed moderate/range-bound price movement on Wednesday and consolidated its recent strong gains to the highest level since January 2017. The US dollar saw strong selling amid some repositioning trades ahead of the decision. FOMC policy statement and acted as a headwind for USD/JPY. That said, a combination of factors helped limit the pair’s decline, at least for now.
Against the backdrop of hopes for a diplomatic solution to end the war in Ukraine, the Chinese government promised to support financial markets and boosted investor confidence. This, in turn, triggered a sharp rally in global stock markets, undermining the safe-haven Japanese yen. This coupled with the BoJ-Fed policy outlook divergence extended support for the USD/JPY pair.
Markets have fully priced in the prospects of an imminent start to the Fed’s tightening cycle, which became apparent from the recent sell-off in US money markets. The benchmark 10-year US government bond surged to the highest level since June 2019. By contrast, the Bank of Japan (BoJ) is expected to maintain the dovish stance at its meeting on Friday.
The fundamental backdrop favors bullish traders and supports the prospects for a further near-term appreciation move for the USD/JPY pair. Investors, however, prefer to wait for the outcome of a two-day FOMC monetary policy meeting, scheduled to be announced later during the US session. Apart from this, overbought conditions prevented traders from placing bets. aggressive bulls.
Technical levels
Source: Fx Street
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