JAPANESE YEN REMAINS CONFINED IN A RANGE AGAINST USD, AWAITS FRESH CATALYST

• The Japanese Yen continues to draw support from the BoJ’s hawkish tilt earlier this month.
• The recent USD pullback from a multi-month top further exerts some pressure on USD/JPY.
• Reduced Fed rate cut bets favour the USD bulls and should limit deeper losses for the pair.

The Japanese Yen (JPY) struggles to gain any meaningful traction during the Asian session on Thursday and remains below the weekly top touched against its American counterpart the previous day. Investors now seem convinced that wage growth this year may outpace that of 2023 and pave the way for the Bank of Japan (BoJ) to exit its decade-long ultra-loose monetary policy, which, in turn, acts as a tailwind for the JPY. Apart from this, the recent US Dollar (USD) pullback from its highest level in almost three months touched earlier this month acts as a headwind for the USD/JPY pair.

The downside for the USD, however, seems limited as investors recently scaled back their expectations for early and steep rate cuts by the Federal Reserve (Fed) in the wake of a resilient US economy and hawkish remarks by several FOMC members. This remains supportive of elevated US Treasury bond yields and favours the USD bulls. Apart from this, the prevalent risk-on mood, as depicted by an extended rally across the global equity markets, could undermine the JPY's relative safe-haven status and help limit the downside for the USD/JPY pair, warranting some caution for bearish traders.

Investors might also refrain from placing aggressive bets and prefer to wait for more cues about the likely pace of Fed rate cuts this year. Hence, the focus will remain glued to the latest US consumer inflation figures, due for release next week, which will play a key role in influencing the Fed's future policy decisions. This, in turn, should drive the USD demand in the near term and provide some meaningful impetus to the USD/JPY pair. In the meantime, traders on Thursday will take cues from the US Weekly Initial Jobless Claims and comments by Fed officials.