USD/JPY stays flat near 108.70 as focus remains on US data and FOMC

After closing the previous day with modest gains near 108.80, the USD/JPY stays calm on Wednesday as market participants are staying on the sidelines ahead of the key macroeconomic events of the day. As of writing, the pair was virtually unchanged on a daily basis at 108.70.

On Tuesday, revived hopes of the US delaying the tariff hike on Chinese imports that will go into effect on December 15th provided a boost to the market sentiment in the second half of the day. The 10-year US Treasury bond yield closed the day 1.1% higher and helped the positively-correlated USD/JPY pair stay in the positive territory.

However, the pair lost its momentum with the trading action turning subdued ahead of the inflation data from the US and the FOMC's monetary policy announcements. Meanwhile, Bank of Japan Governor Kuroda noted that there were positive signs for the global economy but this comment had little no impact on the market sentiment.

Calm before the storm

The core Consumer Price Index (CPI) in the US is expected to stay unchanged at 2.3% on a yearly basis in November. Although the CPI is not the Federal Reserve's preferred gauge of inflation, a higher-than-expected reading could help the USD gain traction. In any case, the market reaction is likely to be muted before the main event of the day. In the meantime, the US Dollar Index is virtually unchanged on a daily basis at 97.51.

Previewing the FOMC meeting, "we expect the Fed to leave rates unchanged at their upcoming meeting. The views on the appropriate policy path are likely to coalesce around the post-mid-cycle pause," noted BBVA analysts. "The hawks, fearing that overly accommodative conditions could fuel financial instability, will view the pause as a positive development, allowing them to time to evaluate how higher accommodation has impacted financial stability."

Technical levels to watch for