The USD/JPY currency pair continues its sideways consolidation for a second consecutive day, trading within a tight range during the early North American session on Wednesday. Currently situated slightly below the mid-138.00s level, the pair remains close to the year-to-date peak reached the previous day.

Following an initial upward movement to a fresh two-month high, the US Dollar (USD) retreats as US Treasury bond yields experience further decline. Additionally, a general weakness in equity markets prompts investors to seek the safe-haven appeal of the Japanese Yen (JPY), creating a headwind for the USD/JPY pair.

Concerns about a potential global economic slowdown, coupled with the lack of progress in discussions regarding an increase in the US debt ceiling, temper risk appetite and drive investors towards traditional safe-haven assets.

On the other hand, the downside for the USD appears cushioned due to growing expectations that the US central bank will maintain higher interest rates for an extended period. Recent hawkish statements from various Federal Reserve (Fed) officials reinforce this sentiment.

Market participants have already factored in the likelihood of another 25 basis points rate hike in June. This diverges significantly from the more dovish stance taken by the Bank of Japan (BoJ), which undermines the JPY and lends support to the USD/JPY pair.

Traders display caution and prefer to stay on the sidelines ahead of the release of the minutes from the Federal Open Market Committee (FOMC) meeting, scheduled for later during the US session.

Analysts will closely analyze the minutes for any hints about the Fed’s future rate-hike trajectory, which will play a crucial role in shaping the USD’s price dynamics and providing fresh direction for the USD/JPY pair.

Nonetheless, the fundamental factors mentioned earlier favor bullish sentiment and indicate that the path of least resistance for spot prices remains to the upside.


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