USD/JPY moves closer to mid-151.00s amid modest USD strength, lacks follow-through

• USD/JPY attracts some dip-buying and turns positive for the second straight day on Thursday.
• The BoJ’s dovish stance weighs on the JPY and acts as a tailwind amid a further USD recovery.
• Bets that the Fed is done hiking rates might cap the USD and the pair amid intervention fears.

The USD/JPY pair turns positive for the second successive day following an intraday dip to the 151.10 area on Thursday and touches a two-day high during the early part of the European session. Spot prices, however, lack follow-through buying and remain below the mid-151.00s.

The Japanese Yen (JPY) continues with its relative underperformance in the wake of a more dovish stance adopted by the Bank of Japan (BoJ), which, along with some follow-through US Dollar (USD) strength, acts as a tailwind for the USD/JPY pair. In fact, the BoJ is the only major central bank to maintain negative interest rates and is in no hurry for any policy shift away from its massive monetary easing.

In contrast, the better-than-expected release of the US Retail Sales data on Wednesday suggested that the economy remains on track for a soft landing. This could allow the Federal Reserve (Fed) to stick to its hawkish stance and wait for longer before cutting rates, which continues to underpin the Greenback and turns out to be another factor lending support to the USD/JPY pair for the second straight day.

Market participants, meanwhile, seem convinced that the Fed will not hike interest rates again and have been pricing in the possibility of rate cuts during the first half of 2024. This is reinforced by a fresh leg down in the US Treasury bond yields, which, in turn, might hold back the USD bulls from placing aggressive bets. Apart from this, a softer risk tone could benefit the safe-haven JPY and cap the USD/JPY pair.

Traders also remain sceptic about the possibility of an intervention by Japanese authorities to combat any sustained depreciation of the domestic currency. This further contributes to keeping a lid on the USD/JPY pair, warranting caution before positioning for any further appreciating move. Investors now look forward to the US macro data for a fresh impetus later during the early North American session.

Thursday’s US economic docket features the release of the usual Weekly Initial Jobless Claims, along with the Philly Fed Manufacturing Index and Industrial Production figures. Apart from this, the US bond yields will drive the USD demand. Traders will further take cues from speeches by influential FOMC members and the broader risk sentiment to grab short-term opportunities around the USD/JPY pair.

Technical levels to watch