USD/JPY bounces off 100-hour SMA, trades with a mild positive bias above mid-141.00s

• USD/JPY finds support near 100-hour SMA and stalls the overnight slide from the YTD top.
• The BoJ’s dovish stance continues to undermine the JPY and acts as a tailwind for the pair.
• The Fed rate hike uncertainty keeps a lid on any further gains ahead of Powell’s testimony.

The USD/JPY pair struggles to gain any meaningful traction on Wednesday and oscillates in a narrow trading band, just above the mid-141.00s through the Asian session. Spot prices, however, manage to hold above the 100-hour Simple Moving Average (SMA) and for now, seem to have stalled the previous day's pullback from the highest level since November 2022.

The Japanese Yen (JPY) continues to be undermined by a more dovish stance adopted by the Bank of Japan (BoJ), which, in turn, acts as a tailwind for the USD/JPY pair. In fact, the minutes of the April BoJ meeting showed that several members said it was appropriate for the central bank to continue with the current monetary easing. The minutes also revealed that Japanese Prime Minister (PM) Fumio Kishida and BoJ Governor Kazuo Ueda agreed that at this point, there was no need to change the joint statement between the government and BoJ.

Apart from this, a modest US Dollar (USD) uptick turns out to be another factor lending some support to the USD/JPY pair. The Federal Reserve's (Fed) hawkish outlook, signalling that borrowing costs may still need to rise as much as 50 bps and forecasting a higher peak interest rate this year, remains supportive of a mild bid tone surrounding the buck. The USD bulls, however, seem reluctant to place aggressive bets ahead of Fed Chair Jerome Powell's testimony, against the backdrop of expectations that the US central bank is nearing the end of its rate-hiking cycle.

Hence, Powell's comments will be closely scrutinized for clues about the Fed's future rate-hike path, which, along with scheduled speeches by a slew of FOMC members, will play a key role in influencing the USD price dynamics. This, in turn, should help investors to determine the near-term trajectory for the USD/JPY pair. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for spot prices is to the upside and any meaningful corrective decline might still be seen as a buying opportunity, rather remain limited.

Technical levels to watch