USD/JPY struggles for firm direction, stuck in a range around 136.00 ahead of Fed's Powell

• USD/JPY extends its sideways consolidative price move for the second successive day on Tuesday.
• Hawkish Fed expectations continue to act as a tailwind for the USD and lend support to the major.
• Looming recession risks underpin the safe-haven JPY and cap gains ahead of Powell’s testimony.

The USD/JPY pair continues with its struggle to gain any meaningful traction and extends its sideways consolidative price move for the second successive day on Tuesday. The pair is currently placed just below the 136.00 mark, nearly unchanged for the day, and remains well within the striking distance of the YTD peak, around the 137.10 region touched last Friday.

The prospects for further policy tightening by the Fed continue to act as a tailwind for the US Dollar (USD) and lend support to the USD/JPY pair. In fact, the markets seem convinced that the US central bank will stick to its hawkish stance and keep rates higher for longer in the wake of stubbornly high inflation. The bets were lifted by the incoming US macro data, which indicated that inflation isn't coming down quite as fast as hoped and pointed to an economy that remains resilient despite rising borrowing costs.

Adding to this, a slew of FOMC policymakers recently backed the case for higher rate hikes and opened the door for a 50 bps lift-off at the March meeting.  Hence, the market focus will remain glued to Fed Chair Jerome Powell's semi-annual testimony before the Senate Banking Committee, due later during the North American session. Investors will look for fresh clues about the Fed's future rate-hike path, which will influence the USD price dynamics and determine the next leg of a directional move for the USD/JPY pair.

Heading into the key event risk, a modest pullback in the US Treasury bond yields is holding back the USD bulls from placing aggressive bets and acting as a headwind for the USD/JPY pair. The downside, however, remains cushioned amid expectations that the Bank of Japan will maintain the ultra-loose policy settings to support the fragile domestic economy. In fact, the incoming BoJ Governor Kazuo Ueda said last week that the central bank isn't seeking a quick move away from a decade of massive easing.

Hence, the BoJ monetary policy decision, scheduled to be announced on Friday, is unlikely to provide any respite to the JPY, suggesting that the path of least resistance for the USD/JPY pair is to the downside. Investors this week will also confront the release of the closely-watched US monthly employment details, popularly known as NFP. In the meantime, looming recession risks could limit deeper losses for the JPY and keep a lid on any meaningful appreciating move for the major, at least for the time being.

Technical levels to watch