USD/JPY remains on the defensive, downside seems cushioned ahead of US macro data

• USD/JPY edges lower on Tuesday and snaps a two-day winning streak amid a modest USD pullback.
• Retreating US bond yields turn out to be a key factor prompting some profit-taking around the buck.
• The risk-on impulse, the Fed-BoJ policy divergence undermines the safe-haven JPY and limits losses.

The USD/JPY pair struggles to capitalize on its gains recorded over the past two trading sessions and meets with some supply on Tuesday. The pair remains on the defensive through the early part of the European session and is currently trading around the 144.25-144.30 area.

The US dollar eases from a new two-decade high touched the previous day and turns out to be a key factor exerting downward pressure on the USD/JPY pair. Bearish traders further take cues from a modest pullback in the US Treasury bond yields, which prompts traders to take some profits off their USD bullish positions. That said, a combination of factors extends some support to the pair and helps limit the downside.

Despite the Japanese government's intervention in the FX market, a big divergence in the monetary policy stance adopted by the Bank of Japan continues to weigh on the  Japanese yen. Adding to this, the risk-on impulse, as depicted by a positive tone around the equity markets, further undermines the safe-haven JPY. This, in turn, assists the USD/JPY pair to hold its neck above the 144.00 mark, at least for the time being.

Furthermore, the prospects for a more aggressive policy tightening by the Federal Reserve favour the USD bulls. The fundamental backdrop suggests that the path of least resistance for the USD/JPY pair is to the upside and supports prospects for the emergence of some dip-buying. Market participants now look forward to Fed Chair Jerome Powell's speech at an event in Paris for some impetus ahead of the US macro data.

Tuesday's US economic docket features the release of Durable Goods Orders, the Conference Board's Consumer Confidence Index, New Home Sales and the Richmond Manufacturing Index. This, along with the US bond yields, will influence the USD price dynamics. Traders will further take cues from the broader risk sentiment to grab short-term opportunities around the USD/JPY pair.

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