The USD/JPY pair builds on the previous day's late rebound from sub-146.00 levels, or over a one-week low and gains some positive traction on Tuesday.
Intervention fears, a softer risk tone underpin the JPY and cap gains for the pair.builds on the previous day's late rebound from sub-146.00 levels, or over a one-week low and gains some positive traction on Tuesday. Spot prices, however, struggle to capitalize on the momentum and retreat a few pips from the 147.00 neighbourhood, or the daily peak. The pair currently trades around the 146.65-146.70 region, up less than 0.10% for the day.
The immediate market reaction to Bank of Japan Governor Kazuo Ueda's hawkish comments fades rather quickly as market participants seem convinced that the Japanese central bank will maintain the status quo until next summer. In an interview with Yomiuri newspaper published on Saturday, Ueda said that ending negative interest rates is among the options available if the BoJ becomes confident that prices and wages will keep going up sustainably.
This eases market fears about an imminent shift in the BoJ's dovish policy stance, which, along with the emergence of some US Dollar buying, acts as a tailwind for the USD/JPY pair. The prospects for further policy tightening by the Federal Reserve remain supportive of elevated US Treasury bond yields and revive the USD demand. The US central bank is expected to pause its rate-hiking cycle in September, though the markets are pricing in the possibility of one more 25 bps lift-off in 2023.
Hence, the market focus will remain glued to the crucial US CPI report, due for release on Wednesday and will provide fresh cues about the Fed's future rate hike path. This, in turn, will play a key role in influencing the near-term USD price dynamics and determining the next leg of a directional move for the USD/JPY pair. In the meantime, the prevalent cautious market mood is seen lending some support to the safe-haven Japanese Yen .
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