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  • USD/JPY was seen consolidating the post-FOMC strong move up to the highest level since April 5.
  • A sharp pullback in the equity markets benefitted the safe-haven JPY and capped gains for the pair.
  • Sustained USD buying, the overnight strong rally in the US bond yields helped limit the downside.

The USD/JPY pair now seems to have entered a bullish consolidation phase and was seen oscillating in a band near the 110.70-75 region, or the highest level since April 5.

A combination of diverging forces failed to assist the USD/JPY pair to capitalize on the previous day’s post-FOMC positive move, instead led to a subdued/range-bound price action on Thursday. A sudden hawkish turn from the Fed dampened investors’ appetite for perceived riskier assets. This was evident from a sharp pullback in the equity markets, which underpinned the safe-haven Japanese yen and acted as a headwind for the major.

The negative factor, to a larger extent, was offset by some follow-through US dollar buying interest. In fact, the key USD Index shot to the highest level in almost two months and remained well supported by the fact that the Fed signalled that it might raise interest rates at a much faster pace than anticipated previously. This, in turn, extended some support to the USD/JPY pair and helped limit any meaningful retracement slide.

The so-called dot plot pointed to two rate hikes by the end of 2023 as against March’s projection for no increase until 2024. Adding to this, seven FOMC members pencilled in a rate hike or more in 2022 as compared to four in March. Officials also upgraded the economic projections significantly for this year. The Fed’s super hawkish pivot pushed the US Treasury bond yields sharply higher, which was seen as another factor lending support to the USD/JPY pair.

Meanwhile, the fundamental backdrop favours bullish traders and supports prospects for additional gains. Hence, Thursday’s price move might still be categorized as a consolidation phase before the next leg up. Nevertheless, the USD/JPY pair seems all set to surpass YTD tops, around the 111.00 mark, and built on its recent positive move witnessed over the past two months or so.

Market participants now look forward to the US economic docket – featuring the release of the Philly Fed Manufacturing Index and the usual Initial Weekly Jobless Claims. This, along with the US bond yields, might influence the USD price dynamics and provide some impetus to the USD/JPY pair. Apart from this, traders might further take cues from the broader market risk sentiment to grab some short-term opportunities around the major.

Technical levels to watch