- USDJPY is under some selling pressure on Thursday amid modest dollar weakness.
- The divergence between the monetary policies of the Fed and the BoJ should act as a tailwind and help limit the pair’s losses.
- Traders also seem reluctant, preferring to wait for the release of the crucial US CPI report.
The pair USDJPY struggles to ride the previous day’s nice bounce from the 145.15-145.10 support zone, or a near two-week low, and runs into fresh selling on Thursday. The pair remains on the defensive at the start of the European session and is currently hovering near the daily low, just above the round level of 146.00.
A modest decline in the dollar, amid repositioning trade ahead of key US macro data, turns out to be a key factor driving some selling around the USDJPY pair. However, the downtrend remains supported as traders appear reluctant to open aggressive positions. ahead of the release of the latest US consumer inflation figures.which will be released this Thursday. The US CPI report will play a major role in determining the Fed’s tightening policy, which should influence short-term USD price dynamics and provide a further directional boost to the pair.
Nevertheless, markets continue to assess the possibility of a Fed interest rate hike of at least 50 basis points in December. Instead, the Bank of Japan has so far shown no intention of raising interest rates. Furthermore, the BoJ remains hell-bent on keeping the 10-year bond yield at 0%. In fact, the governor of the BoJ, Haruhiko Kuroda, has reiterated on Thursday that the central bank must continue to support the fragile economic recovery with easy monetary policy. Kuroda has added that economic uncertainty is extremely high and deeper negative rates are an option if necessary.
This points out a large divergence from a more hawkish Fed and supports the outlook for some buying into USDJPY. Furthermore, the fact that the Bank of Japan governor has dismissed hopes of direct intervention in the forex market to safeguard the national currency reinforces the positive bias in the pair. Therefore, any subsequent slide could still attract some buyers and is more likely to remain limited, at least for now. That said, a convincing break below the psychological level of 145.00 will negate the constructive outlook.
USDJPY technical levels
Source: Fx Street
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