The Dollar to Yen (USD/JPY) is struggling to capitalize on a solid increase of 140-145 pips from the previous day’s low of 147.15, the lowest level since September 14, and is instead moving lower during the Asian session on Wednesday. However, the spot price managed to hold above the psychological level of 148.00 and remains heavily influenced by the dynamics of the US Dollar (USD).
 
On Tuesday, the USD received a slight boost, bouncing back from its lowest point in nearly three months in response to hawkish FOMC minutes. The minutes indicated that policymakers support efforts to keep interest rates high for longer to control inflation.
 
Nevertheless, investors seem convinced that the US central bank will prefer to keep interest rates stable rather than raising them. Additionally, current market forecasts suggest the possibility of the first rate cut during the FOMC policy meeting on April 30-May 1. This is reinforced by the fact that US 10-year Treasury yields remain depressed, approaching two-month lows, posing a barrier to US Dollar strength.
 
On the other hand, the Japanese Yen (JPY) is gaining support from the narrowing interest rate differential between the US and Japan, along with speculation that the Bank of Japan (BoJ) will almost certainly end its negative interest rate policy in the first few months of 2024.
 
This hawkish trend follows the BoJ's decision last month to adjust its Yield Curve Control (YCC) policy by easing long-term interest rate constraints. BoJ Governor Kazuo Ueda also stated last week that Japan has made progress in sustainably achieving its 2% inflation target and that the central bank will not wait for real wages to turn positive before exiting the accommodative policy that has been in place for a decade.
 
Thus, this suggests that the overnight price increase may still be short-covering, especially after a recent decline of nearly 500 pips from the 152.00 level, which tested this year's peak earlier this month.
 
Furthermore, the aforementioned fundamental backdrop indicates that the path of least resistance for the USD/JPY pair is still skewed to the downside. Market participants are currently awaiting the US economic calendar, which includes Initial Weekly Jobless Claims, Durable Goods Orders, and revised Michigan Consumer Sentiment Index data for additional momentum during the early North American session.
 
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Warning!
 
This analysis is based on fundamental and technical perspectives from reliable sources and is not intended as advice or an invitation to trade. Always remember that this content aims to enrich readers' information. Always conduct independent research regarding other forex information as a reference for your trading.
 
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