• USD/JPY is struggling to gain significant traction and oscillates between tepid gains and small losses.
• A softer risk tone benefits the safe-haven JPY and puts pressure on amid modest USD weakness.
• The dovish comments from the BoJ Governor help limit any significant decline in the pair.

The pair USD/JPY It attracts some intraday sellers near the 130.30 area on Monday and pulls back over 100 pips from the daily high. However, the pair remains within a one-week range and now seems to have stabilized above 129.50 at the beginning of the European session.

The Japanese yen (JPY) continues to receive support from the new speculation that high inflation could invite a tougher stance from the Bank of Japan later this year. Also, the Widespread weakness in stock markets bolsters Japanese yen as a safe haven currency. This, coupled with the underlying bearish sentiment around the US dollar, is putting some downward pressure on the USD/JPY pair and contributing to the intraday slide.

In fact, the DXY dollar index, which measures the strength of the dollar against a basket of currencies, is weakening near multi-month lows amid a few increasingly firm expectations of less aggressive monetary policy tightening by the Fed. Markets appear convinced that the US central bank will soften its hawkish stance and offer a smaller rate hike of 25 basis points at the end of a two-day meeting on Wednesday. This keeps US Treasury yields depressed and weighs on the dollar.

Faced with the risk of this week’s Fed policy decision, traders seem reluctant to open aggressively bearish positions around the USD/JPY pair. Apart from this, BoJ Governor Kuroda Haruhiko’s comments saying that the central bank should continue the loose policy and keep the 2% inflation target limit the JPY’s rise. This warrants some caution before going bearish, at least for now.

USD/JPY technical levels