USD/JPY sticks to gains near weekly high, around 144.75-80 region amid stronger USD

• USD/JPY regains positive traction on Thursday amid the emergence of fresh USD buying.
• A pickup in the US bond yields and aggressive Fed rate hike bets revives the USD demand.
• The risk-off impulse offers some support to the safe-haven JPY and seems to cap the pair.
• The Fed-BoJ policy divergence favours bulls and supports prospects for additional gains.

The USD/JPY pair regains some positive traction on Thursday and trades near the top end of a three-day-old trading range, around the 144.80 region through the first half of the European session.

The US dollar makes a solid comeback and reverses a part of the overnight sharp retracement slide from a two-decade high, which, in turn, is seen offering support to the USD/JPY pair. Following the previous day's dramatic turnaround, a fresh leg up in the US Treasury bond yields, bolstered by hawkish Fed expectations, helps revive the USD demand.

Investors seem convinced that the US central bank will tighten its monetary policy at a faster pace to curb persistently high inflation. This marks a big divergence in comparison to a more dovish stance adopted by the Bank of Japan, which continues to undermine the Japanese yen and further contributes to intraday buying around the USD/JPY pair.

It is worth mentioning that the Japanese central bank has been lagging behind other major central banks in the process of policy normalisation and remains committed to continuing with its monetary easing. Moreover, a government spokesperson signalled on Thursday that Japan is ready to take more steps to ease the pain from the rising electricity bills.

That said, the risk-off impulse, as depicted by a sea of red across the global equity markets, seems to be lending some support to the safe-haven JPY. This, in turn, is holding back traders from placing fresh bullish bets around the USD/JPY pair. Nevertheless, the fundamental backdrop suggests that the path of least resistance for spot prices is to the upside.

Market participants now look forward to the US economic docket, featuring the release of the final Q2 GDP report and the usual Weekly Initial Jobless Claims data. This, along with speeches by influential FOMC members and the US bond yields, will drive the USD. Apart from this, the broader market risk sentiment should provide some impetus to the USD/JPY pair.

Technical levels to watch