USD/JPY remains confined in a narrow range below YTD peak, downside seems cushioned

• USD/JPY struggles to gain traction and oscillates in a range for the second straight day on Tuesday.
• Intervention fears, economic woes benefit the safe-haven JPY and act as a headwind for the pair.
• The Fed-BoJ policy divergence continues to lend support and limit the downside, at least for now.

The USD/JPY pair extends its sideways consolidative price move for the second successive day on Tuesday and oscillates in a narrow band through the Asian session. Spot prices, however, remain well within the striking distance of the YTD peak touched last Friday and currently trade just below mid-143.00s.

The Japanese Yen (JPY) continues to draw some support from speculations that authorities will respond to any excessive moves in the currency market. Apart from this, worries about a global economic downturn benefit the JPY's relative safe-haven status, which, along with subdued US Dollar (USD) demand, acts as a headwind for the USD/JPY pair. The downside, however, remains cushioned in the wake of a big divergence in the monetary policy stance adopted by the Bank of Japan (BoJ) and other major central banks, including the Federal Reserve (Fed).

It is worth recalling that BoJ Governor Kazuo Ueda recently ruled out the possibility of any change in ultra-loose policy settings. In contrast, Fed Chair Jerome Powell, during his two-day congressional testimony last week, reiterated that the central bank will likely raise interest rates again this year, albeit at a "careful pace", to contain high inflation. Powell added that the Fed doesn't see rate cuts happening any time soon and is going to wait until it is confident that inflation is moving down to the 2% target. This, in turn, is seen lending support to the USD/JPY pair.

Traders, however, seem reluctant to place aggressive bullish bets, rather prefer to wait on the sidelines ahead of speeches by Fed Chair Jerome Powell and BoJ Governor Kazuo Ueda on Wednesday. Investors this week will also confront the release of the US Core PCE Price Index - the Fed's preferred inflation gauge on Friday. In the meantime, Tuesday's US economic docket - featuring Durable Goods Orders, the Conference Board's Consumer Confidence Index, New Home Sales and Richmond Manufacturing Index - will be looked upon for some impetus around the USD/JPY pair.

Technical levels to watch