USD/JPY consolidates below 147.00, bulls retain control near 24-year top ahead of US CPI

• USD/JPY is seen oscillating in a narrow trading band below a 24-year low touched on Wednesday.
• Investors now seem to have moved to the sidelines and prefer to wait for the crucial US CPI report.
• Fears of an intervention by Japanese authorities also hold back traders from placing aggressive bets.

The USD/JPY pair now seems to have entered a bullish consolidation phase and oscillates in a narrow band through the first half of the European session. Spot prices remain well within the striking distance of the highest level since August 1998, around the 147.00 mark touched on Wednesday as investors brace for the crucial US CPI report.

The US inflation figures will determine the size of the Fed's next interest rate hike, which, in turn, will help determine the near-term trajectory for the US dollar and the USD/JPY pair. In the meantime, traders prefer to move to the sidelines amid speculations for more currency market intervention by Japanese authorities. In fact, Japan's Finance Minister Shunichi Suzuki reiterated earlier this week that the government stands ready to intervene and respond appropriately to excess FX moves.

Moreover, Bank of Japan BoJ Governor Haruhiko Kuroda said on Wednesday that the government intervention last month to stop one-sided depreciating moves in the Japanese yen was quite appropriate. That said, the divergent policy stance adopted by the Bank of Japan (dovish) and other major central banks (hawkish), along with the risk-on impulse, continue to undermine the safe-haven JPY. It is worth mentioning that the Japanese central bank, so far, has shown no inclination to hike interest rates.

Adding to this, Japan's Prime Minister Fumio Kishida said that the BoJ needs to stick to its ultra-lose policy until wages rise. In contrast, the markets have been pricing in another supersized 75 bps Fed rate hike move in November, which remains supportive of elevated US Treasury bond yields. The resultant widening of the US-Japan rate differential favours bullish traders. Hence, any meaningful pullback could be seen as a buying opportunity and is likely to remain limited, for the time being.

Technical levels to watch