USD/JPY remains on the back foot below 156.00; BoJ-Fed policy divergence favors bears
- USD/JPY trades with a mild negative bias and is pressured by a combination of factors.
- BoJ rate hike bets underpin the JPY and weigh amid dovish Fed-inspired USD weakness.
- A positive risk tone caps gains for the safe-haven JPY and limits losses ahead of US data.
The USD/JPY pair struggles to capitalize on the previous day's move higher to levels beyond the 156.00 mark and edges lower during the Asian session on Wednesday. Spot prices currently trade around the 155.75 region, though the downtick lacks follow-through or a bearish conviction.
The Japanese Yen (JPY) continues with its relative outperformance on the back of rising bets for an interest rate hike by the Bank of Japan (BoJ). The expectations were lifted by BoJ Governor Kazuo Ueda's comments earlier this week, saying that the likelihood of the central bank's economic and price projections being met is rising. This was seen as the strongest signal that conditions for a rate hike were falling into place, which underpins the JPY and weighs on the USD/JPY pair.
The US Dollar (USD), on the other hand, struggles to attract any meaningful buyers and languishes near its lowest level since November 14, touched on Monday, amid the growing acceptance that the US Federal Reserve (Fed) will cut rates next week. This marks a significant divergence in comparison to the BoJ's hawkish outlook, which should continue to drive flows towards the lower-yielding JPY and suggests that the path of least resistance for the USD/JPY pair is to the downside.
That said, a generally positive risk tone is holding back traders from placing aggressive bullish bets around the safe-haven JPY. Investors also opt to wait for this week's important US macro releases before positioning for the next leg of a directional move. Wednesday's US economic docket features the release of the ADP report on private-sector employment and the ISM Services PMI. The focus, however, remains on the US Personal Consumption Expenditure (PCE) Price Index on Friday.
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