USD/JPY sticks to gains near one-week high, lacks follow-through beyond 132.00 mark

• USD/JPY catches aggressive bids on Wednesday and climbs to a one-week high.
• The risk-on mood undermines the safe-haven JPY and lends support to the pair.
• The Fed’s less hawkish stance keeps the USD on the defensive and caps the upside.

The USD/JPY pair regains positive traction following the previous day's downfall and maintains its bid tone through the mid-European session on Wednesday. The momentum pushes spot prices to a one-week high, though bulls struggle to capitalize on the move further beyond the 132.00 round-figure mark.

Easing fears of a full-blown banking crisis remains supportive of a generally positive tone around the equity markets, which, in turn, undermines the safe-haven Japanese Yen (JPY) and acts as a tailwind for the USD/JPY pair. The takeover of Silicon Valley Bank by First Citizens Bank & Trust Company calmed market nerves about the contagion risk. This, coupled with the lack of negative news from the banking sector over the past two weeks, further boosted investors' confidence and helps reverse the recent negative sentiment.

The JPY is further weighed down by the overnight dovish-sounding remarks by Bank of Japan (BoJ) Governor Haruhiko Kuroda, saying that it is too early to debate an exit from easy monetary policy. Adding to this, the recent widening of the US-Japan rate differential, led by a rally in the US Treasury bond yields witnessed since the beginning of the current week, also contributes to driving flows away from the JPY. That said, subdued US Dollar (USD) demand holds back traders from placing fresh bullish bets around the USD/JPY pair.

The Federal Reserve (Fed) last week toned down its approach to reining in inflation and signalled that a pause to interest rate hikes was on the horizon in the wake of the turmoil in the banking sector. This leads to a fresh leg down in the US Treasury bond yields and could act as a headwind for the USD. The BoJ, on the other hand, is expected to tweak its bond yield control policy and whittle down its massive stimulus under new Governor Kazuo Ueda. This further contributes to keeping a lid on the USD/JPY pair, at least for the time being.

Market participants now look to the US economic docket, featuring the release of Pending Home Sales later during the early North American session. Apart from this, the US bond yields will influence the USD price dynamics and provide some impetus to the USD/JPY pair. Traders will further take cues from the broader market risk sentiment to grab short-term opportunities. The focus, however, remains glued to the release of the Fed's preferred inflation gauge - the US Core PCE Price Index, due on Friday.

Technical levels to watch