- USD/JPY is moving higher on Wednesday, although the modest intraday rally lacks bullish conviction.
- Expectations of lower Fed rate hikes continue to weigh on the dollar and act as a headwind for the pair.
- Upbeat Bank of Japan expectations and recession fears benefit the safe-haven JPY and help cap the pair’s gains.
The pair USD/JPY It attracts some buyers near the psychological 130.00 level on Wednesday and reverses some of the modest losses from the previous day. However, the pair seems to have a hard time capitalizing on the move and remains limited by the 130.50 area at the beginning of the European session.
The dollar remains on the defensive, near nine-month lows, which in turn is seen as a key factor acting as a headwind for the USD/JPY pair. The markets now seem convinced the Fed will soften its hawkish stance in the face of signs of easing inflationary pressures and have been pricing in a lower rate hike of 25 basis points in February. This halts the recent rally in US Treasury yields and continues to weigh on the dollar.
Elsewhere, the Japanese yen (JPY) is supported by fresh speculation that high inflation could prompt the Bank of Japan to take a more aggressive stance later in the year. Expectations rose after Japan’s latest CPI report showed consumer inflation rose to a level of 4% in December, the highest in 41 years. Apart of this, Concerns about a deeper global economic recession benefit the JPY of safe haven and help cap the USD/JPY pair.
The aforementioned fundamental background favors the bears and suggests that the path of least resistance for the USD/JPY pair is to the downside.. However, the decline looks supported as traders would prefer to stay on the sidelines ahead of this week’s US macro releases such as the Q4 GDP preview and the core PCE price index. Attention will then turn to the highly anticipated FOMC monetary policy meeting, scheduled for next week.
Meanwhile, US bond yields will play a key role in the dollar’s dynamics, in the absence of relevant economic data in the market. On the other hand, overall risk sentiment will be key to taking advantage of some short-term opportunities around the USD/JPY pair.
Technical levels to watch
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
