USD/JPY sticks to modest intraday gains above 137.00 mark, focus remains on US CPI

• A combination of factors assisted USD/JPY to regain positive traction on Wednesday.
• The Fed-BoJ policy divergence, a positive risk tone undermined the safe-haven JPY.
• Traders now look forward to the crucial US CPI report for a fresh directional impetus.

The USD/JPY pair attracted fresh buying on Wednesday and recovered a part of the overnight corrective losses. The pair held on to its modest intraday gains through the early European session and was last seen trading just a few pips above the 137.00 round-figure mark.

A slight improvement in the risk sentiment - as depicted by a modest bounce in the equity markets - undermined demand for traditional safe-haven assets. This, along with the divergence monetary policy stance adopted by the Bank of Japan and the Federal Reserve, assisted the USD/JPY pair to regain some positive traction.

It is worth mentioning that BoJ Governor Haruhiko Kuroda reiterated on Monday that the central bank remains ready to take additional monetary easing steps as necessary. In contrast, the unsurprisingly hawkish FOMC meeting minutes released last week indicated that another 50 or 75 bps rate hike is likely at the July meeting.

Policymakers also emphasized the need to fight inflation even if it results in an economic slowdown. Hence, the market focus will remain glued to the release of the latest US consumer inflation figures, due later during the early North American session. The headline CPI is expected to rise from the 8.6% YoY rate in May to 8.8% YoY in June.

A stronger-than-expected US CPI print will reaffirm market bets that the Fed would stick to its faster policy tightening path. This would be enough to trigger a fresh leg up in the US Treasury bond yields and boost the USD, supporting prospects for an extension of the USD/JPY pair's recent strong bullish trajectory.

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