USD/JPY trades with modest intraday losses, below 144.00 amid intervention fears

• USD/JPY pulls back from a fresh YTD peak, though the downside remains cushioned.
• Intervention fears provide a modest lift to the JPY and act as a headwind for the pair.
• The BoJ-Fed policy divergence continues to lend support and limits any further losses.

The USD/JPY pair comes under some selling pressure during the Asian session on Wednesday and erodes a part of the previous day's gains to levels beyond the 144.00 mark, or a fresh high since November 2022. Spot prices currently trade around the 143.80 area, down nearly 0.20% for the day, though any meaningful corrective decline still seems elusive.

Japanese officials continue to step up warnings against the recent weakness in the Japanese Yen (JPY), which, in turn, is seen as a key factor prompting some long-unwinding around the USD/JPY pair. In fact, Japanese Finance Minister Shunichi Suzuki said on Tuesday that they will watch the forex market with a sense of urgency and would respond appropriately if the currency moves became excessive. The warning was reiterated by Japan's top currency diplomat Masato Kanda earlier this Wednesday.

Meanwhile, reports indicated that the Biden administration is considering new restrictions on exports of artificial intelligence chips to China, fueling worries about the worsening relations between the world's two largest economies. This further benefits the JPY's relative safe-haven status and contributes to the offered tone around the USD/JPY pair. That said, a big divergence in the monetary policy stance adopted by the Bank of Japan (BoJ) and other major central banks might cap the JPY.

It is worth recalling that BoJ Governor Kazuo Ueda recently ruled out the possibility of any change in the ultra-loose policy settings and signalled no immediate plans to alter the yield curve control measures. In contrast, Fed Chair Jerome Powell said last week that the central bank will likely raise interest rates again this year, albeit at a "careful pace", to contain high inflation and doesn't see rate cuts happening any time soon. This, in turn, should help limit the downside for the USD/JPY pair.

Hence, it will be prudent to wait for strong follow-through selling before confirming that spot prices have formed a near-term top and positioning for any further losses. Traders might also refrain from placing aggressive bets ahead of Fed Chair Jerome Powell and BoJ Governor Kazuo Ueda's appearance at the ECB Forum on Central Banking in Sintra later this Wednesday. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the USD/JPY pair is to the upside.

Technical levels to watch