The USD/JPY pair experienced renewed selling pressure after a brief uptick to the 141.15-141.20 region, extending its third consecutive day of decline on Wednesday. During the early European session, spot prices remained defensive, hovering around the 140.70 area, just a few pips above the weekly low.
The US Dollar (USD) continued its downward trend for the second day, retracting from a two-week high reached on Tuesday, which is seen as a significant factor influencing the USD/JPY pair.
Conversely, the Japanese Yen (JPY) received a slight boost as the Cabinet Office’s monthly report raised its view on business sentiment for July, the first positive change in seven months. Furthermore, Japan maintained its assessment of the economy recovering at a moderate pace.
Meanwhile, the International Monetary Fund (IMF) issued a warning about higher inflation in Japan and urged the Bank of Japan (BoJ) to exit its easy-money policy.
However, BoJ Governor Kazuo Ueda reiterated the central bank’s commitment to an accommodative monetary stance and assured that the long-term yield rate remains stable under the yield curve control (YCC) policy. This, combined with the prevailing risk-on sentiment, is expected to limit gains for the safe-haven JPY and offer support to the USD/JPY pair.
Traders are exercising caution and holding back on aggressive bets as they await the outcome of the crucial Federal Open Market Committee (FOMC) policy meeting scheduled later on Wednesday.
The Federal Reserve (Fed) is expected to raise interest rates by 25 bps, but there is skepticism among investors regarding whether the US central bank will adopt a more dovish stance despite the robust economy. The focus will remain on the accompanying policy statement and Fed Chair Jerome Powell’s press conference.
Investors will closely analyze cues about the future rate-hike path, which will play a pivotal role in influencing USD price dynamics and providing meaningful impetus to the USD/JPY pair.
Attention will then shift to the upcoming two-day BoJ monetary policy meeting starting on Thursday. However, considering the fundamental backdrop, caution is advised before concluding that the recent rebound from nearly a two-month low has stalled.
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