Japanese Yen moves back closer to multi-week top against USD

• The Japanese Yen continues to be underpinned by bets on more BoJ rate hikes.
• The narrowing US-Japan yield differential further benefits the lower-yielding JPY. 
• The Fed's hawkish pause underpins the USD and could lend support to USD/JPY.

The Japanese Yen (JPY) remains on the front foot for the second successive day against its American counterpart and drags the USD/JPY pair below mid-154.00s during the Asian session on Thursday. Investors now seem convinced that the Bank of Japan (BoJ) will hike interest rates further, which, in turn, is seen underpinning the JPY. Moreover, the recent narrowing of the US-Japan yield differential turns out to be another factor driving flows towards the lower-yielding JPY. 

Meanwhile, concerns that US President Donald Trump's trade policies could escalate into a global trade war might hold back the JPY bulls from placing aggressive bets. Furthermore, the Federal Reserve's (Fed) hawkish pause on Wednesday could act as a tailwind for the US Dollar (USD) and limit losses for the USD/JPY pair. Moving ahead, the highly anticipated European Central Bank (ECB) meeting might elevate market volatility and influence demand for the safe-haven JPY. 

Japanese Yen bulls retain control amid BoJ rate hike bets

• Minutes of the December Bank of Japan meeting showed on Wednesday that board members discussed how to use estimates on the economy's neutral interest rate to determine further hikes in borrowing costs.
• Former BoJ board member Makoto Sakurai said on Tuesday that broadening wage hikes, prospects of sustained price rises and solid economic growth give the central bank scope to continue raising rates steadily.
• The Federal Reserve, as was widely expected, decided to keep rates steady at the end of a two-day meeting on Wednesday and struck a hawkish stance, signaling no immediate plans for further rate reductions. 
• In the post-meeting press conference, Fed Chair Jerome Powell said that we do not need to be in a hurry to adjust our policy stance and that monetary policy is well positioned for the challenges at hand.
• Powell's remarks reaffirmed the notion that rates will remain higher for longer amid caution over US President Donald Trump's protectionist policies, which could boost inflation and act as a tailwind for the US Dollar.
• The yield on the benchmark 10-year US government bond struggles to capitalize on the post-FOMC bounce from over a one-month trough amid the uncertainty over the Trump administration's trade policies. 
• The Asahi newspaper reported this Thursday that plans are being finalized for a meeting between Japan's Prime Minister Shigeru Ishiba and US President Donald Trump in Washington on February 7.
• The European Central Bank's policy decision later today might infuse some volatility in the financial markets. Apart from this, the Advance Q4 US GDP print should provide some impetus to the USD/JPY pair. 

USD/JPY could retest multi-week low around the 153.70 area

The emergence of fresh sellers near the 156.00 round figure and the subsequent fall below the 155.00 psychological mark confirms a breakdown through a multi-month-old ascending channel support. Moreover, oscillators on the daily chart have been gaining negative traction, suggesting that the path of least resistance for the USD/JPY pair remains to the downside. Hence, some follow-through weakness below the 154.00 mark, towards retesting a multi-week low around the 153.70 region touched on Monday, looks like a distinct possibility. 

On the flip side, attempted recovery might now confront resistance near the 155.00 round figure ahead of the 155.35-155.40 region. Any further move up might still be seen as a selling opportunity and remain capped near the 156.00 mark. This is followed by the weekly top, around the 156.25 area, which should act as a key pivotal point. A sustained strength beyond the latter might trigger a fresh bout of a short-covering rally and lift the USD/JPY pair to the 156.70-156.75 region en route to the 157.00 round figure and the 157.60 horizontal barrier.