USD/JPY trades with modest losses around mid-133.00s amid softer USD

• USD/JPY edges lower for the second successive day, though the downside lacks follow-through.
• The BoJ’s dovish outlook, along with a positive risk tone undermine the JPY and lend support.
• The recent slump in the US bond yields weighs on the USD and might cap the upside for the pair.

The USD/JPY pair remains on the defensive for the second successive day on Wednesday, albeit manages to hold just above over a one-week low touched the previous day. The pair trades around the 133.50, down over 0.10% for the day during the early European session and is influenced by a combination of diverging forces.

The Bank of Japan (BoJ) Kazuo Ueda's dovish remarks earlier this week, along with a modest recovery in the US equity futures, undermine the safe-haven Japanese Yen (JPY) and act as a tailwind for the USD/JPY pair. It is worth recalling that the new BoJ Governor said on Monday that the central bank must maintain monetary easing as trend inflation is still below 2% and added that inflation forecasts must be quite strong and close to 2% in the coming year to consider tweaking yield curve control.

The upside for the USD/JPY pair, however, remains capped, at least for the time being, amid renewed US Dollar (USD) selling, led by the recent slump in the US Treasury bond yields. In fact, the yield on the benchmark 10-year Treasury yields registered its largest decline since March amid rising concerns about the regional banking sector, the possibility of an imminent recession and worries about the US debt ceiling. This, in turn, fails to assist the Greenback to capitalize on the overnight strong gains.

Traders might also refrain from placing aggressive directional bets and move to wait on the sidelines ahead of the key US macro data/central bank event risk. Investors this week will confront the release of the Advance US Q1 GDP print on Thursday, which will be followed by the US Core PCE Price Index - the Fed's preferred inflation gauge. This, along with the crucial BoJ monetary policy meeting on Friday, should provide a fresh impetus and help determine the near-term trajectory for the USD/JPY pair.

In the meantime, traders on Thursday will take cues from the release of the US Durable Goods Orders, due later during the early North American session. 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, the broader risk sentiment should further contribute to producing short-term opportunities around the major.

Technical levels to watch