USD/JPY eases from YTD peak, trades with modest losses around mid-147.00s

The USD/JPY pair attracts some intraday sellers near the 147.80 region, or a fresh high since November 2022 touched this Tuesday and for now, seems to have snapped a three-day winning streak. Spot prices, however, manage to hold above the Asian session low and currently trade around the 147.55 region, down just over 0.10% for the day.

Japan's top currency diplomat Masato Kanda warned against the recent sell-off in the Japanese Yen (JPY) and said that authorities won't rule out any options if speculative moves in the currency market persist. This, along with the cautious market mood, benefits the JPY's safe-haven status and exerts downward pressure on the USD/JPY pair. A private survey showed on Tuesday that business activity in China's services sector expanded at its slowest pace in eight months and fueled worries about the worsening conditions in the world's second-largest economy. Apart from this, persistent US-China trade tensions temper investors' appetite for riskier assets.

In the latest development, US Secretary of Commerce Gina Raimondo said that she doesn't expect any changes to the US tariffs imposed on China by the Trump administration until the ongoing review by the US Treasury is complete. That said, any meaningful corrective decline for the USD/JPY pair seems elusive in the wake of a big divergence in the monetary policy stance adopted by the Bank of Japan (BoJ) and other major central banks, including the Federal Reserve (Fed). It is worth mentioning that the BoJ is the only central bank in the world to maintain negative interest rates and is widely expected to stick to its ultra-loose monetary policy setting.

The bets were further reaffirmed by BoJ policymaker Hajime Takata's comments this Wednesday, saying that the central bank must patiently maintain easy policy given very high uncertainty on the outlook. In contrast, the Fed is anticipated to keep rates higher for longer. Moreover, the markets are still pricing in the possibility of one more 25 bps lift-off by the end of this year, The hawkish outlook remains supportive of elevated US Treasury bond yields, which favours the USD bulls and should help limit losses for the USD/JPY pair.

Market participants now look to the release of the US ISM Non-Manufacturing PMI, due later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the USD/JPY pair. Traders will further take cues from the broader risk sentiment to grab short-term opportunities. Nevertheless, the aforementioned fundamental backdrop seems tilted firmly in favour of bulls and suggests that the path of least resistance for spot prices is to the upside.

Technical levels to watch