USD/JPY sits near multi-day high, comfortably above 114.00 mark ahead of FOMC

• A combination of supporting factors assisted USD/JPY to regain positive traction on Wednesday.
• A strong recovery in the risk sentiment undermined the safe-haven JPY and extended support.
• Fed rate hike bets acted as a tailwind for the USD and also contributed to the ongoing move up.
• The focus remains on the outcome of a two-day FOMC meeting, due later during the US session.

The USD/JPY pair maintained its bid tone heading into the North American session and was last seen trading around the 114.20 region, or a near one-week high.

Following the previous day's two-way/directionless price moves, the USD/JPY pair caught fresh bids on Thursday and built on this week's recovery from the 113.45 region, or a two-month low. This marked the second day of a positive move for the USD/JPY pair in the previous three sessions and was sponsored by a combination of supporting factors.

Despite rising geopolitical risks, a strong recovery in the global risk sentiment – as depicted by a generally positive tone around the equity markets – undermined the safe-haven Japanese yen. Apart from this, modest US dollar strength extended additional support to the USD/JPY pair and remained supportive of the positive momentum.

The greenback continued drawing support from expectations that the Fed will tighten its monetary policy at a faster pace than anticipated. In fact, the markets have fully priced in a lift-off in March and expect a total of four hikes in 2022. This acted as a tailwind for elevated US Treasury bond yields and underpinned the buck.

It, however, remains to be seen if bulls are able to hold the upper hand or opt to lighten their bets ahead of the key event risk – the outcome of a two-day FOMC meeting. Investors will look for clues about the likely timing of when the Fed will commence its tightening cycle, which should provide a fresh directional impetus to the USD/JPY pair.

Technical levels to watch