USD/JPY remains range-bound below year’s high; waiting for the Fed and the BOJ

• USD/JPY regains positive traction on Tuesday, although the rally lacks bullish conviction.
• Traders are choosing to stay on the sidelines pending key interest rate decisions from the FOMC and the Bank of Japan.
• However, the fundamental backdrop remains firmly tilted in favor of bullish traders.

The USD/JPY pair attracts some buying on dips on Tuesday, although it fails to capitalize on the modest rally and remains below its highest level since November 2022 touched last week. The pair is trading around the 147.70 zone, up less than 0.10% for the day, as traders look forward to risks from this week’s key central bank events.

The Federal Reserve (Fed) is scheduled to announce its decision on Wednesday and is widely anticipated to maintain the status quo. Markets, however, seem convinced that the US central bank will maintain its hawkish stance and keep rates higher for longer. The outlook remains favorable for elevated US Treasury yields, helping the US Dollar (USD) halt its corrective pullback from a six-month high and lending support to the USD/JPY pair.

That said, speculation about an imminent dovish change in the Bank of Japan’s (BOJ) stance is preventing traders from placing new bullish bets on major currencies. BoJ Governor Kazuo Ueda, in an interview with the Yomiuri newspaper, stated that ending negative interest rates is one of the options available if the central bank is confident that prices and wages will continue to rise sustainably. This, in turn, raised bets that the BOJ could move away from ultra-loose policy.

Hence, attention will also focus on the BOJ’s monetary policy meeting on Friday. Investors will be attentive to forecasts regarding the reversal of the Japanese central bank’s negative interest rate policy. This, in turn, will play a key role in influencing the JPY and provide fresh directional momentum to the USD/JPY pair. Meanwhile, on Tuesday, traders could take advantage of US housing market data (building permits and housing starts) to take advantage of short-term opportunities.

From a technical point of view, the range-bound price movements seen over the past two weeks could still be classified as a bullish consolidation phase against the backdrop of the recent rally towards a multi-month high. This, in turn, suggests that the path of least resistance for the USD/JPY pair is to the upside. However, it would be prudent to wait for a break of the Operating Range resistance, just before 148.00, before positioning for further gains.

Technical levels to monitor