USD/JPY remains confined in a range near multi-year peak, FOMC decision awaited

• USD/JPY was seen consolidating its recent strong gains to the highest level since January 2017.
• The heavy intraday USD selling capped the upside amid extremely overbought conditions.
• The risk-on undermined the safe-haven JPY and extended support amid elevated US bond yields.
• The market focus remains glued to the outcome of a two-day FOMC monetary policy meeting.

The USD/JPY pair struggled to gain any meaningful traction and remained confined in a range just below the multi-year high, around the 118.30 region through the early North American session.

The pair witnessed subdued/range-bound price move on Wednesday and consolidated its recent strong gains to the highest level since January 2017. The US dollar witnessed heavy selling amid some repositioning trade ahead of the FOMC policy decision and acted as a headwind for the USD/JPY pair. That said, a combination of factors helped limit the downside for the major, at least for now.

Against the backdrop of hope for a diplomatic solution to end the war in Ukraine, China's government promised to support the financial markets and boosted investors' confidence. This, in turn, triggered strong rally in the global equity markets, which undermined the safe-haven Japanese yen. This, along with the divergence in the BoJ-Fed policy outlooks, extended support to the USD/JPY pair.

The markets have fully priced in the prospects for an imminent start of the policy tightening cycle by the Fed, which was evident from the recent sell-off in the US money markets. In fact, the yield on the benchmark 10-year US government bond shot to the highest level since June 2019. Conversely, the Bank of Japan (BoJ) is expected to maintain the accommodative stance at its meeting on Friday.

The fundamental backdrop favours bullish traders and supports prospects for a further near-term appreciating move for the USD/JPY pair. Investors, however, preferred to wait for the outcome of a two-day FOMC monetary policy meeting, scheduled to be announced later during the US session. Apart from this, overbought conditions further held back traders from placing aggressive bullish bets.

Technical levels to watch