USD/JPY remains below mid-141.00s amid modest USD weakness, FOMC minutes in focus

• USD/JPY attracts some buying on Wednesday, though the uptick lacks bullish conviction.
• Bets for less aggressive rate hikes continue to weigh on the USD and cap gains for the pair.
• The downside seems limited amid the Fed-BoJ policy divergence, ahead of FOMC minutes.

The USD/JPY pair reverses an intraday dip to sub-141.00 levels and bounces over 50 pips from the daily low. Spot prices, however, struggle to capitalize on the move and meet with a fresh supply near the 141.50 level amid the prevalent selling bias surrounding the US Dollar.

Despite the recent hawkish comments by several Fed officials, investors now seem convinced that the US central bank will slow the pace of its policy tightening. In fact, the current market pricing indicates a greater chance of a relatively smaller 50 bps rate hike at the next FOMC policy meeting in December. This, in turn, has been a key factor behind the recent sharp pullback in the US Treasury bond yields and continues to act as a headwind for the greenback.

The Fed, however, is still far from pausing its rate-hiking cycle and is expected to continue raising borrowing costs to curb inflation. This should limit the downside for the US bond yields and lend some support to the buck. Hence, the market focus will remain glued to the release of the November FOMC meeting minutes, due later during the US session. Investors will look for clues about future rate hikes, which will influence the near-term USD price dynamics.

In the meantime, a more dovish stance adopted by the Bank of Japan (BoJ), along with signs of stability in the equity markets, could undermine the safe-haven Japanese Yen and offer support to the USD/JPY pair. In fact, BoJ, so far, has shown no inclination to hike interest rates. Moreover, BoJ Governor Haruhiko Kuroda reiterates last week that the central bank will stick to its monetary easing to support the economy and achieve the 2% inflation target in a stable fashion.

This marks a big divergence in comparison to the Fed and supports prospects for the emergence of some buying around the USD/JPY pair at lower levels. Even from a technical perspective, Monday's sustained move back above the 100-day SMA resistance, around the 141.00 mark, confirmed a breakout through a one-week-old trading range. This adds credence to the positive outlook and warrants some caution before positioning for any meaningful depreciating move, at least for now.

Technical levels to watch