- USD/JPY lacks a firm directional bias and oscillates in a tight range on Thursday.
- The divergence between the monetary policies of the Fed and the Bank of Japan, and the positive tone in risk appetite weigh on the JPY.
- A modest pullback in the dollar prevents the bulls from opening new positions and caps the pair’s upside.
The pair USD/JPY oscillates between tepid gains and small losses and remains in a narrow range around the level of 136.00 at the start of the European session on Thursday.
The media have reported that The Bank of Japan will increase its inflation forecast for 2022 above 2%prompting some intraday selling around the USD/JPY pair on Thursday. The initial drop was quickly bought near the 135.55 region after the Bank of Japan reiterated that it is fully committed to the current ultra-loose monetary policy stance.
Instead, the minutes of the FOMC meeting on June 14 and 15, published on Wednesday, reaffirmed market expectations for a more aggressive rate hike by the US central bank. Indeed, policymakers insisted on the need to fight inflation even if it meant a slowdown in the economy, signaling that another rate hike of 50 or 75 basis points is likely at the July meeting.
The divergent outlook on monetary policy between the BoJ and the Fed, coupled with a positive tone around equity markets, weighed on the safe-haven JPY and acted as a tailwind for the USD/JPY pair. Nevertheless, A modest US dollar retracement from two-decade highs reached on Wednesday prevented bulls from opening new positions and capped the pair’s upside.
Nevertheless, the fundamental background supports the prospects of a short-term move higher for the USD/JPY pair. Market participants are now awaiting the release of weekly jobless claims for a further boost. Additionally, investors will be following speeches by Fed Governor Christopher Waller and St. Louis Fed President James Bullard.
Additionally, the broader risk sentiment should help investors take advantage of some short-term opportunities around the USD/JPY pair. However, the focus will continue to be on the US monthly NFP employment report, due out on Friday, which will play a key role in influencing short-term dollar price dynamics.
USD/JPY technical levels
Source: Fx Street
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