USD/JPY recovers a few pips from daily low, finds some support ahead of 147.00 mark

• USD/JPY edges lower for the third successive day, though the downside remains cushioned.
• The Fed’s hawkish outlook pushes the US bond yields higher and underpins the greenback.
• Geopolitical risks and intervention fears might hold back bulls from placing aggressive bets.

The USD/JPY pair struggles to capitalize on the previous day's post-FOMC recovery from a multi-day low and attracts some sellers near the 148.00 mark on Thursday. The intraday downtick, however, finds some support at lower levels, allowing spot prices to bounce over 40 pips from the vicinity of the 147.00 round figure.

A more hawkish stance adopted by the Fed continues to underpin the US dollar and acts as a tailwind for the USD/JPY pair. In fact, Fed Chair Jerome Powell - though raised the prospect of smaller rate hikes going forward - downplayed expectations that the US central bank may pause its rate-hiking cycle. In the post-meeting press conference, Powell hinted that the Fed will keep raising interest rates to contain inflation.

Powell added that the terminal rate is at a much higher level than initially anticipated, which, in turn, triggered a fresh leg up in the US Treasury bond yields. In contrast, the Bank of Japan, so far, has shown no inclination to hike interest rates and reiterated that it will continue to guide the 10-year bond yield at 0%. The resultant widening of the US-Japan rate differential offers additional support to the USD/JPY pair.

That said, expectations for a fresh intervention by the Japanese authorities to soften any steep fall in the domestic currency, along with geopolitical risks, benefit the safe-haven JPY. In fact, North Korea fired an unidentified ballistic missile toward the East Sea that reportedly has flown over Japan. This comes amid the protracted Russia-Ukraine war and warrants caution before placing fresh bullish bets around the USD/JPY pair.

Nevertheless, the Fed-BoJ policy divergence still should continue to limit any meaningful corrective slide, suggesting that the path of least resistance for the USD/JPY pair is to the upside. Market participants now look forward to the US ISM Services PMI, due later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the USD/JPY pair.

Technical levels to watch