USD/JPY stays in range below 112, can BoJ push pair out of its channel?

The USD/JPY pair continues to fluctuate in its narrow trading band below the 112 handle and struggles to set its next short-term direction. As of writing, the pair was virtually unchanged on a daily basis at 111.87.

Earlier today, the All Industry Activity Index published by Japan's Ministry of Economy came in at -0.2% for February and missed the market expectation of -0.1%. On the other hand, the Leading Economic Index and the Coincident Index both improved from their January readings to offset any potential negative impact on the JPY.

Meanwhile, major European equity indexes are trading mixed on Wednesday, pointing out to a neutral market sentiment that fails to provide any directional clues to the pair. Tomorrow, the BoJ will be announcing its interest rate decision and releasing the monetary policy statement. Previewing the event, "In the new outlook report, the policy board will likely maintain its positive assessment of Japan's underlying economic strength, while continuing to be cautious of the recent weakness in economic data," Societe Generale analysts said.

On the other hand, following yesterday's impressive upsurge, the US Dollar Index is staying in a consolidation phase today. There won't be any macroeconomic data releases from the U.S. today and participants will be paying close attention to Wall Street's performance. Yesterday, the upbeat earnings figures boosted stock markets and allowed the S&P 500 to come within a touching distance of the record high that was set back in October. 

Technical levels to consider

Above 112 (psychological level/upper limit of the two-week-old trading range), the pair could aim for 112.40 (Dec. 20 high) and 113.25 (Dec. 5 high). On the downside, near-term supports could be seen at 111.70 (20-DMA), 111.50 (200-DMA) and 111.30 (50-DMA).