USD/JPY remains confined in a range below YTD top; awaits crucial Fed, BoJ policy meetings

• USD/JPY regains positive traction on Tuesday, though the uptick lacks bullish conviction.
• Traders opt to remain on the sidelines ahead of the key FOMC and the BoJ rate decisions.
• The fundamental backdrop, however, still seems tilted firmly in favour of bullish traders.

The USD/JPY pair attracts some dip-buying on Tuesday, albeit struggles to capitalize on the modest uptick and remains below its highest level since November 2022 touched last week. Spot prices trade around the 147.70 region, up less than 0.10% for the day, as traders keenly await this week's key central bank event risks.

The Federal Reserve (Fed) is scheduled to announce its decision on Wednesday and is widely anticipated to maintain the status quo. Market players, however, seem convinced that the US central bank will stick to its hawkish stance and keep rates higher for longer. The outlook remains supportive of elevated US Treasury bond yields, which assists the US Dollar (USD) to stall its corrective pullback from a six-month peak and lends support to the USD/JPY pair.

That said, speculations of an imminent shift in the Bank of Japan (BoJ) dovish stance hold back traders from placing fresh bullish bets around the major. BoJ Governor Kazuo Ueda, in an interview with Yomiuri newspaper, said that ending negative interest rates is among the options available if the central bank becomes confident that prices and wages will keep going up sustainably. This, in turn, lifted bets that the BoJ could move away from ultra-loose policy.

Hence, the spotlight will also be on the BoJ policy meeting on Friday. Investors will look for any forward guidance on when the Japanese central bank's negative interest rate policy will be reversed. This, in turn, will play a key role in influencing the JPY and provide a fresh directional impetus to the USD/JPY pair. In the meantime, traders on Tuesday might take cues from the US housing market data – Building Permits and Housing Starts – to grab short-term opportunities.

From a technical perspective, the rangebound price moves witnessed over the past two weeks or so might still be categorized as a bullish consolidation phase against the backdrop of the recent runup to a multi-month peak. This, in turn, suggests that the path of least resistance for the USD/JPY pair is to the upside. However, it will still be prudent to wait for a breakout through the trading range resistance, just ahead of the 148.00 mark, before positioning for further gains.

Technical levels to watch