USD/JPY struggles for direction, remains confined in a range around 136.00 mark

• USD/JPY lacked any firm directional bias and oscillated in a narrow trading band on Thursday.
• The Fed-BoJ policy divergence, a positive risk tone undermined the JPY and extended support.
• Modest USD pullback held back bulls from placing fresh bets and capped the upside for the pair.

The USD/JPY pair seesawed between tepid gains/minor losses and remained confined in a narrow band around the 136.00 mark through the early European session.

Media reports that the Bank of Japan will raise its view of inflation for 2022 to above 2% prompted some intraday selling around the USD/JPY pair on Thursday. The early downtick was quickly bought into near the 135.55 region after the BoJ reiterated that it is fully committed to the current ultra-lose monetary policy stance.

In contrast, the minutes of the June 14-15 FOMC meeting, released on Wednesday, reaffirmed market bets for more aggressive rate hikes by the US central bank. In fact, policymakers emphasized the need to fight inflation even if it meant slowing an economy and indicated that another 50 or 75 bps rate hike is likely at the July meeting.

The divergent BoJ-Fed policy outlook, along with a generally positive tone around the equity markets, undermined the safe-haven JPY and acted as a tailwind for the USD/JPY pair. That said, a modest US dollar pullback from a fresh two-decade high touched on Wednesday held back bulls from placing fresh bets and capped the upside for the major.

Nevertheless, the fundamental backdrop supports prospects for a further near-term appreciating move for the USD/JPY pair. Market participants now look forward to the US Weekly Initial Jobless Claims for a fresh impetus. Traders will further take cues from Fed Governor Christopher Waller and St. Louis Fed President James Bullard's scheduled speeches.

Apart from this, the broader risk sentiment should assist traders to grab short-term opportunities around the USD/JPY pair. The focus, however, will remain glued to the closely-watched US monthly jobs report - popularly known as NFP - due for release on Friday, which will play a key role in influencing the near-term USD price dynamics.

Technical levels to watch