USD/JPY remains on the defensive below 114.00 mark, FOMC awaited

• USD/JPY witnessed a subdued/range-bound price action through the early European session.
• Nervousness ahead of the key FOMC decision benefitted the safe-haven JPY and capped gains.
• The downside remains cushioned as traders seem reluctant heading into the key event risk.

The USD/JPY pair extended its sideways consolidative move and remained confined in a range below the 114.00 mark heading into the European session.

The pair struggled to capitalize on the previous day's rebound from the 113.45 region and witnessed a subdued/range-bound price action through the first half of the trading action on Wednesday. Investors turned nervous ahead of the critical FOMC meeting. This was evident from the cautious market mood, which benefitted the safe-haven Japanese yen and acted as a headwind for the USD/JPY pair amid a softer tone around the US dollar.

The downside, however, remains cushioned as investors seemed reluctant to place aggressive bets heading into the key central bank event risk. The Fed will announce its monetary policy decision later during the US session and is widely expected to begin tapering its $120 billion-a-month asset purchase program. Investors, however, would look for clues about the likely timing when the US central bank will raise interest rates.

The markets have been pricing in the prospects for an early policy tightening by the Fed amid growing worries about a faster-than-expected rise in inflationary pressures. Hence, the focus will remain on Fed Chair Jerome Powell's remarks at the post-meeting press conference. This will play a key role in influencing the near-term USD price dynamics and help investors to determine the next leg of a directional move for the USD/JPY pair.

In the meantime, traders might take cues from the US economic docket – featuring the releases of the ADP report on private-sector employment and the ISM Services PMI. The data might provide some impetus to the USD/JPY pair, though the initial reaction is more likely to be muted as traders might prefer to wait for a fresh catalyst from the latest FOMC policy update.

Technical levels to watch