USD/JPY remains depressed near weekly low, below 141.00 mark as traders await FOMC

• USD/JPY turns lower for the third straight day and is pressured by modest USD weakness.
• The fundamental backdrop warrants some caution before positioning for additional losses.
• Traders might also refrain from placing aggressive bets ahead of the FOMC policy decision.

The USD/JPY pair attracts fresh selling following an intraday uptick to the 141.15-141.20 region and turns lower for the third successive day on Wednesday. Spot prices remain on the defensive through the early European session and currently trade around the 140.70 area, just a few pips above the weekly low touched in the last hour.

The US Dollar (USD) extends the overnight modest pullback from a two-week low and drifts lower for the second straight day, which, in turn, is seen as a key factor exerting some pressure on the USD/JPY pair. The Japanese Yen (JPY), on the other hand, gets a minor lift after the Cabinet Office, in the monthly report, raised its view on business sentiment in July for the first time in seven months. Adding to this, Japan retained its assessment of the economy as recovering at a moderate pace.

The International Monetary Fund (IMF), meanwhile, warned of higher inflation from Japan and urged the Bank of Japan (BoJ) to exit its easy-money policy. The BoJ Governor Kazuo Ueda, however, reiterated on Wednesday that the central bank will stick to its accommodative monetary stance and added that the long-term yield rate remains stable under the yield curve control (YCC) policy. This, along with the risk-on mood, should cap the safe-haven JPY and lend support to the USD/JPY pair.

Traders might also refrain from placing aggressive bets and prefer to wait for the outcome of the crucial FOMC policy meeting, scheduled to be announced later this Wednesday. The Federal Reserve (Fed) is expected to hike interest rates by 25 bps, though investors remain sceptic if the US central bank will pivot to a more dovish stance in the wake of an extremely resilient economy. Hence, the focus will remain on the accompanying policy statement and Fed Chair Jerome Powell's presser.

Investors will look for cues about the future rate-hike path, which, in turn, will play a key role in influencing the USD price dynamics and provide some meaningful impetus to the USD/JPY pair. The market attention will then shift to the two-day BoJ monetary policy meeting starting on Thursday. Nevertheless, the aforementioned fundamental backdrop warrants some caution before confirming that the recent goodish rebound from a nearly two-month low has run out of steam.

Technical levels to watch