USD/JPY pauses BoJ-inspired slump to multi-month low, finds some support near 132.00

• USD/JPY comes under intense selling pressure in reaction to the BoJ’s hawkish twist on Tuesday.
• Recession fears continue to weigh on investors’ sentiment and further benefit the safe-haven JPY.
• The Fed’s hawkish outlook, rising US bond yields fails to impress USD bulls or lend any support.

The USD/JPY pair adds to its heavy intraday losses and plummets to over a four-month low, around the 132.00 mark during the mid-European session. The pair, however, manages to recover a few pips in the last hour and is currently trading around the 132.70-132.75 region.

The sharp fall for the USD/JPY pair comes after the Bank of Japan (BoJ) stunned markets by reviewing its yield curve control policy. In a surprise move, the Japanese central bank decided to widen the range for fluctuations in the 10-year government bond yield. This is seen as a precursor to the end of the BoJ's ultra-accommodative monetary policy and prompts aggressive buying around the Japanese Yen.

Moreover, the cautious mood - amid growing recession fears - benefits the safe-haven JPY and exerts additional downward pressure on the USD/JPY pair. Investors remain concerned that a surge in COVID-19 cases in China could delay a broader reopening of the economy. Adding to this, geopolitical risks fuel worries about a deeper global economic downturn and take its toll on the risk sentiment.

The US Dollar, on the other hand, struggles to attract buyers despite a more hawkish commentary by the Fed last week. It is worth recalling that the US central bank indicated that it will continue to raise interest rates to crush inflation and projected an additional 75 bps lift-off by the end of 2023. This triggers a fresh leg up in the US Treasury bond yields, though fails to impress the USD bulls.

The intraday slump, meanwhile, confirms a fresh breakdown below a technically significant 200-day SMA and supports prospects for an extension of the depreciating move. That said, the oversold RSI (14) on hourly charts hold back traders from placing fresh bearish bets. This, in turn, assists the USD/JPY pair to find some support near the 132.00 mark, though any meaningful bounce seems elusive.

Market participants now look forward to the release of the US housing market data - Building Permits and Housing Starts. The data might do little to influence the USD or provide any impetus to the USD/JPY pair. Nevertheless, the aforementioned factors suggest that the path of least resistance for spot prices is to the downside and attempted recovery is more likely to get sold into.

Technical levels to watch