USD/JPY holds steady near multi-day high, remains below 133.00 ahead of US data

• USD/JPY touches a four-day high on Thursday, though lacks any follow-through.
• The emergence of some buying around the USD acts as a tailwind for the major.
• Reports that BoJ will raise inflation forecasts benefit the JPY and caps the upside.

The USD/JPY pair reverses an intraday dip to the 131.70-131.65 area and touches a four-day peak during the first half of the European session on Thursday. Spot prices, however, struggle to capitalize on the move and remain below the 133.00 mark, warranting caution before positioning for an extension of this week's recovery from the lowest level since June 2022.

The emergence of some US Dollar buying turns out to be a key factor lending some support to the USD/JPY pair. That said, the prospects for smaller rate hikes by the Federal Reserve keep the US Treasury bond yields depressed near a three-week low and holds back traders from placing aggressive bullish bets around the USD. In fact, the minutes of the December FOMC policy meeting released on Wednesday showed that officials unanimously supported raising borrowing costs at a slower pace.

This, along with reports that the Bank of Japan (BpJ) plans to raise its inflation forecasts, underpins the Japanese Yen and contributes to capping the USD/JPY pair. According to Reuters, the upgrade would underscore the central bank's conviction that robust domestic demand will keep inflation sustainably around its 2% target in coming years. This, in turn, fuels speculations that the BoJ will phase out its ultra-lose policy when Governor Haruhiko Kuroda's second five-year term ends in April.

The aforementioned fundamental factors suggest that the path of least resistance for the USD/JPY pair is to the downside and any meaningful upside is likely to get sold into. That said, traders might prefer to move to the sidelines ahead of the closely-watched US monthly jobs report (NFP), due on Friday. In the meantime, Thursday's US macro data - the ADP report on private-sector employment and Weekly Initial Jobless Claims - might produce short-term trading opportunities.

Technical levels to watch