USD/JPY consolidates in a range around mid-144.00s, just below YTD peak

• USD/JPY remains confined in a narrow trading band through the Asian session on Wednesday.
• Intervention fears seem to cap the pair amid the uncertainty over the Fed’s rate-hike path.
• The Fed-BoJ policy divergence acts as a tailwind as traders keenly await the FOMC minutes.

The USD/JPY pair continues with its struggle to gain any meaningful traction on Wednesday and oscillates in a narrow trading band around mid-144.00s through the Asian session. Spot prices, however, remain well within the striking distance of the highest level since November 2022 touched last week and the fundamental backdrop suggests that the path of least resistance is to the upside.

Against the backdrop of the USD/JPY pair's recent rally from the June swing low, the range-bound price action witnessed over the past week or so might still be categorized as a bullish consolidation phase. Furthermore, 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), might continue to undermine the Japanese Yen (JPY). This, in turn, supports prospects for additional near-term gains for the major.

Despite the fact that inflation in Japan has exceeded the 2% goal for more than a year, BoJ Governor Kazuo Ueda has repeatedly stressed the need to keep monetary policy ultra-loose until wages increase enough to keep price growth sustainably around the target. Moreover, BoJ has pledged to patiently sustain stimulus and focus on supporting a fragile economic recovery. This, in turn, reinforces market expectations that the BoJ's negative interest-rate policy will remain in place at least until next year.

In contrast, Fed Chair Jerome Powell reiterated last week that two more rate increases are likely by the end of this year. This further lifts bets for a 25 bps lift-off at the upcoming FOMC meeting on July 25-26, which remains supportive of elevated US Treasury bond yields and favours the USD bulls. That said, the softer US PCE Price Index released on Friday, along with Monday's weaker US ISM PMI, raises questions over how much headroom the Fed has to continue tightening its monetary policy.

Hence, the market focus will remain glued to the release of the June FOMC meeting minutes, due later during the US session this Wednesday. Investors will look for fresh cues about the Fed's future rate-hike path, which will play a key role in influencing the USD price dynamics and provide a fresh directional impetus to the USD/JPY pair. In the meantime, intervention fears could lend some support to the JPY and keep a lid on any meaningful upside for spot prices, at least for the time being.

Technical levels to watch