USD/JPY sticks to modest gains, remains below 135.00 amid subdued USD price action

• USD/JPY gains traction for the second straight day, albeit lacks any follow-through.
• A combination of factors undermines the JPY and acts as a tailwind for the major.
• The USD stands tall near a one-week high and remains supportive of the move up.

The USD/JPY pair builds on the overnight goodish rebound from the 133.75 region, or a one-week low. and gains some follow-through traction for the second successive day on Friday. The pair maintains its bid tone through the early part of the European session and is currently placed around the 134.70 region, up over 0.20% for the day.

A generally positive tone around the equity markets, along with the Bank of Japan's (BoJ) dovish outlook, undermines the safe-haven Japanese Yen (JPY) and turns out to be a key factor acting as a tailwind for the USD/JPY pair. It is worth recalling that the BoJ Governor Kazuo Ueda, speaking in parliament earlier this week, said it was too early to discuss specific plans for an exit from the massive stimulus programme.

The US Dollar (USD), on the other hand, reverses a modest intraday dip and stands tall near a one-and-half-week high touched on Thursday, which, in turn, lends additional support to the USD/JPY pair. The uncertainty over the Federal Reserve's (Fed) next policy move, along with a modest uptick in the US Treasury bond yields, continue to underpin the Greenback, though the US debt ceiling concerns act as a headwind.

The US CPI report released earlier this week pointed to signs of easing inflationary pressure and reaffirmed market expectations about an imminent pause in the Fed's year-long rate-hiking cycle. Investors, however, remain divided over the possibility of rate cuts later this year. This, in turn, holds back the USD bulls from placing aggressive bets and might keep a lid on any meaningful upside for the USD/JPY pair, at least for now.

Market participants now look forward to the release of the Preliminary Michigan Consumer Sentiment Index from the US, due later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the USD/JPY pair. Apart from this, traders will take cues from the broader risk sentiment to grab short-term opportunities on the last day of the week.

Technical levels to watch