- USD/JPY edged lower on Thursday amid a modest USD pullback from a two-decade high.
- A positive risk tone undermined the safe-haven JPY and acted as a tailwind for the pair.
- The divergent Fed-BoJ policy stance supports prospects for the emergence of dip-buying.
The USD/JPY pair attracted some selling on Thursday and retreated nearly 70 pips from the daily high, around the 136.20 region. The pair remained on the defensive through the early North American session and was last seen hovering near the lower end of its intraday trading range, just above mid-135.00s.
Following the recent strong bullish run to a 20-year peak, modest US dollar profit-taking turned out to be a key factor that exerted downward pressure on the USD/JPY pair. The downside, however, remains cushioned amid a recovery in the risk sentiment, which tends to undermine the safe-haven Japanese yen.
Reports indicated that China is looking at a $220 billion fiscal stimulus program in the second half of 2022 to shake off the ongoing real estate crisis and revive consumer demand in the economy. This boosted investors' confidence, which was evident from a generally positive tone around the equity markets.
Apart from this, the divergent monetary policy stance adopted by the Federal Reserve and the Bank of Japan supports prospects for the emergence of some dip-buying around the USD/JPY pair. In fact, the June FOMC meeting minutes indicated that another 50 or 75 bps rate hike is likely at the July meeting.
In contrast, the BoJ is expected to retain its ultra-low interest rate policy at the next meeting later this month. Meanwhile, the prospects for a more aggressive policy tightening by the Fed, along with reduced safe-haven demand, lifted the US Treasury bond yields, which further validates the positive outlook.
On the economic data front, the US Weekly Initial Jobless Claims unexpectedly rose to 235K during the week ended July 1 as against the 230K anticipated. The data failed to provide any meaningful impetus to the USD/JPY pair, though the fundamental backdrop seems tilted in favour of bullish traders.
