- USDJPY comes under some selling pressure on Thursday amid a modest USD weakness.
- The Fed-BoJ policy divergence should act as a tailwind and help limit losses for the pair.
- Traders also seem reluctant and prefer to wait for the release of the crucial US CPI report.
The USDJPY pair struggles to capitalize on the previous day's goodish rebound from the 145.15-145.10 support zone, or a nearly two-week low and meets with a fresh supply on Thursday. The pair remains on the defensive through the early European session and is currently placed near the daily low, just above the 146.00 round figure.
A modest US Dollar downtick, amid some repositioning trade ahead of the key US macro data, turns out to be a key factor prompting some selling around the USDJPY pair. The downside, however, remains cushioned as traders seem reluctant to place aggressive bets ahead of the latest US consumer inflation figures, due later this Thursday. The crucial US CPI report will play an important role in determining the Fed's policy tightening path, which should influence the near-term USD price dynamics and provide a fresh directional impetus to the major.
Nevertheless, the markets are still pricing in the possibility of at least a 50bps Fed rate hike move in December. In contrast, the Bank of Japan, so far, has shown no intentions to raise interest rates. Moreover, the BoJ remains committed to guiding the 10-year bond yield at 0%. In fact, BoJ Governor Haruhiko Kuroda reiterated on Thursday that the central bank must continue to underpin a fragile economic recovery with loose monetary policy. Kuroda added that economic uncertainty is extremely high and deeper negative rates are an option if needed.
This marks a big divergence in comparison to a more hawkish Fed and supports prospects for the emergence of some buying around the USDJPY pair. Furthermore, the fact that the BoJ chief brushed aside hopes for any direct forex market intervention to safeguard the domestic currency adds credence to the positive bias. Hence, any subsequent slide might continue to attract some buyers and is more likely to remain limited, at least for the time being. That said, a convincing break below the 145.00 psychological mark will negate the constructive outlook.
