USD/JPY trades with a mild negative bias around mid-144.00s, downside seems cushioned

• USD/JPY continues with its struggle to make it through 145.00 and edges lower on Tuesday.
• Intervention fears hold back bulls from placing aggressive bets and exert pressure on the pair.
• The downside remains limited amid the BoJ-Fed policy divergence and ahead of key US data.

The USD/JPY pair struggles to capitalize on the previous day's positive move back closer to the 145.00 psychological mark and edges lower during the Asian session on Tuesday. Spot prices currently trade around the 144.50 area, down 0.10% for the day, though remain well within the striking distance of the highest level since November 2022 touched last Friday.

The recent jawboning by Japanese authorities fueled speculations about a potential intervention in the currency markets, which, in turn, is seen as a key factor that continues to act as a headwind for the USD/JPY pair. It is worth recalling that Japan's Finance Minister Shunichi Suzuki warned last week that the government will take appropriate steps should the Japanese Yen (JPY) weaken excessively. Adding to this, the Bank of Japan (BoJ) had said that it must closely watch the impact exchange-rate moves could have on the economy.

That said, expectations that the BoJ will stick to its ultra-ease monetary policy stance keep a lid on any meaningful gains for the JPY and lend some support to the USD/JPY pair. Against the backdrop of a view that inflation will slow later this year, the BoJ pledged to patiently sustain stimulus and focus on supporting a fragile economic recovery. Furthermore, BoJ Governor Kazuo Ueda had ruled out the possibility of any change in ultra-loose policy settings and signalled no immediate plans to alter the yield curve control measures.

This marks a big divergence in comparison to a more hawkish outlook by other major central banks, including the Federal Reserve (Fed), and supports prospects for the emergence of some dip-buying around the USD/JPY pair. In fact, the Fed signalled in June that borrowing costs may still need to rise as much as 50 bps by the end of this year. The outlook was reinforced by Fed Chair Jerome Powell's last week, though the US Dollar (USD), so far, has been struggling to gain any meaningful traction in the wake of softer US macro data.

The Bureau of Economic Analysis reported that the annual PCE Price Index decelerated to 3.8% in May from the 4.3% previous and the core gauge ticked down to 4.6% from 4.7% in April. Furthermore, the Institute for Supply Management's (ISM) Manufacturing PMI dropped to the lowest level since May 2020 and came in at 46.0 for June. This marks the eighth straight month of contraction and adds to worries about a global economic downturn, which could benefits the JPY's safe-haven status and cap the upside for the USD/JPY pair.

Traders might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of this week's important releases from the US, including the FOMC meeting minutes on Wednesday. Investors will look for fresh cues about the Fed's future rate-hike path. Apart from this, the closely-watched US monthly jobs report - popularly known as NFP on Friday - will play a key rolse in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the USD/JPY pair.

Technical levels to watch