USD/JPY holds comfortably above 109.00 mark, focus remains on the Fed
- USD/JPY regained positive traction on Wednesday and inched back closer to multi-month tops.
- The upbeat US economic outlook underpinned the USD and continued lending some support.
- The cautious mood benefitted the safe-haven JPY and might cap the upside ahead of the FOMC.
The USD/JPY pair traded with a mild positive bias heading into the European session and was last seen trading near the 109.15 region, up around 0.15% for the day.
Following the previous day's modest pullback, the pair managed to regain some positive traction and has now moved well within the striking distance of multi-month tops set earlier this week. The upbeat US economic outlook continued underpinning the US dollar, which, in turn, was seen as a key factor lending some support to the USD/JPY pair.
Investors remain optimistic that the passage of a massive $1.9 trillion stimulus package would play a key role in spurring economic growth in the US. Even Tuesday's disappointing release of the US monthly Retail Sales figures did little to dent market expectations for a relatively faster US economic recovery from the pandemic.
Meanwhile, the reflation trade forced investors to start pricing in an uptick in US inflation and raised doubts that the Fed would retain ultra-low interest rates for a longer period. This, along with a larger government borrowing, pushed the yield on the benchmark 10-year US bond back above 1.6% and further underpinned the greenback.
That said, speculations that the Fed could take some action to curb any further rise in long-term borrowing cost acted as a headwind for the US bond yields. This seemed to be the only factor that held bulls from placing aggressive bets and might keep a lid on any further upside for the USD/JPY pair ahead of the FOMC policy decision.
Heading into the key event risk, investors might refrain from placing aggressive bets. Apart from this, the prevalent cautious mood – amid concerns over the temporary suspension of the Oxford/AstraZeneca coronavirus vaccine in Europe – might extend some support to the safe-haven Japanese yen and further collaborate to cap gains for the USD/JPY pair.
Technical levels to watch