USD/JPY gains some positive traction and stages a goodish rebound from over a one-week low.
A positive risk tone is seen undermining the safe-haven JPY and acting as a tailwind for the pair.
Bets for less aggressive Fed rate hikes keep the USD bulls on the defensive and might cap gains.

The USD/JPY pair attracts some buying on Friday and recovers a part of the previous day’s losses to the 138.00 neighbourhood, or a one-and-half-week low. The pair sticks to intraday gains through the first half of the European session and is currently placed near the top end of its daily range, just below the 139.00 mark.

A generally positive tone around the equity markets undermines the safe-haven Japanese yen, which, in turn, is seen as a key factor offering some support to the USD/JPY pair. Apart from this, a more dovish stance adopted by the Bank of Japan is seen weighing on the domestic currency and acting as a tailwind for the major. The uptick, however, lacks bullish conviction and runs the risk of fizzling out rather quickly amid the underlying bearish sentiment surrounding the US Dollar.

The November FOMC meeting minutes released on Wednesday revealed that officials were largely satisfied they could stop front-loading the rate increases and move in smaller steps. This, in turn, cements bets for a 50 bps lift-off at the next FOMC meeting in December and is evident from the ongoing downfall in the US Treasury bond yields. The resultant narrowing of the US-Japan rate differential is benefitting the JPY and keeping a lid on any meaningful recovery for the USD/JPY pair.

Furthermore, a surge in core consumer prices in Japan’s capital – to their fastest annual pace in 40 years in November – cast doubt on the BoJ’s view that recent cost-push inflation will prove transitory. This might further hold back traders from placing aggressive bullish bets around the USD/JPY pair amid relatively thin trading volumes. This makes it prudent to wait for strong follow-through buying before confirming that spot prices have bottomed out in the near term.

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