USD/JPY inter-markets: cautious sentiment weighing, Fed minutes holds the key

The USD/JPY pair traded with bearish bias on Wednesday and dropped to 113.00 handle, reversing all of its gains recorded in the previous session.

Tuesday's remarks by Bank of Japan Governor Haruhiko Kuroda, negating possibilities of further lowering negative interest rates, triggered the initial leg of profit taking slide in the major despite of a follow through US Dollar buying interest. 

Adding to this, retracement in the US and Japanese treasury bond yields pointed to cautious investors' sentiment and provided an additional boost to the Japanese Yen's safe-haven appeal. Moreover, an up-tick in the Volatility Index (VIX), leading to a corrective weakness in the US equity markets, coupled with concerns over potential political instability in the Euro-zone, ahead of the French Presidential elections, also boosted demand for traditional safe-haven assets and further collaborated to the pair's weakness on Wednesday.

Meanwhile, increasing bets for an eventual Fed rate-hike action, sooner-rather-than-later, seems to be lending some support and helping the pair to hold the 113.00 support area, at-least for the time being.

Judging from today's price-action, traders also appeared to readjust and hedge their long-dollar positions in the event of any less hawkish statement from the FOMC meeting minutes, scheduled for release later during the day.

In absence of any major market-moving releases, broader market risk sentiment (VIX) and treasury yield dynamics, which would take fresh cues from today’s Fed minutes, remains key determinants of the pair’s next leg of directional move.