USD/JPY refreshes weekly high amid modest USD strength, lacks bullish conviction

• USD/JPY edges higher on Wednesday and hits a fresh weekly high amid a modest USD uptick.
• Bets for smaller Fed rate hikes, sliding US bond yields might cap gains for the USD and the pair.
• Traders might also refrain from placing aggressive bets ahead of the US CPI report on Thursday.

The USD/JPY pair gains some positive traction on Wednesday and climbs to the 133.00 neighbourhood, or a fresh weekly top during the early North American session. The uptick, however, lacks bullish conviction and runs the risk of fizzling out rather quickly.

The US Dollar attracts some dip-buying and moves away from a seven-month low touched on Tuesday, which, in turn, is seen lending some support to the USD/JPY pair. Apart from this, a generally positive tone around the equity markets undermines the safe-haven Japanese Yen and provides a modest lift to the major. That said, growing acceptance that the Fed will soften its hawkish stance might hold back bulls from placing aggressive bets and keep a lid on any meaningful upside for spot prices, at least for now.

Friday’s mixed jobs report from the United States (US) showed a slowdown in wage growth and pointed to signs of easing inflationary pressures. Furthermore, business activity in the US services sector hit the worst level since 2009, suggesting that the effect of the Fed's large rate hikes in 2022 is being felt in the economy. This, in turn, lifted bets for smaller Fed rate hikes going forward, which keeps the US Treasury bond yields depressed near a multi-week low and should act as a headwind for the USD.

Apart from this, speculations that the Bank of Japan (BoJ) will eventually phase out its ultra-loose monetary policy settings might further contribute to capping the USD/JPY pair. Traders might also refrain from placing directional bets and prefer to move to the sidelines ahead of the release of the US consumer inflation figures on Thursday. The crucial US CPI report will influence the Fed's policy outlook, which, in turn, will drive the USD and provide a fresh directional impetus to the pair.

In the meantime, the US bond yields, the US price dynamics and the broader market risk sentiment will be looked upon for some short-term trading opportunities around the USD/JPY pair. Nevertheless, the aforementioned fundamental backdrop warrants some caution for bullish traders and positioning for any further appreciating move in the absence of any relevant economic data from the US.

Technical levels to watch