• USD/JPY struggles to gain any meaningful traction and seesaws between tepid gains/minor losses.
• A softer risk tone benefits the safe-haven JPY and exerts pressure amid a modest USD weakness.
• Dovish-sounding comments by the BoJ Governor help limit any meaningful downside for the pair.

The USD/JPY pair attracts some intraday sellers near the 130.30 area on Monday and retreats over 100 pips from the daily peak. Spot prices, however, remain well within a one-week-old trading range and now seem to have stabilized above the mid-129.00s during the early European session.

The Japanese Yen (JPY) continues to draw support from fresh speculation that high inflation may invite a more hawkish stance from the Bank of Japan later this year. Apart from this, a generally weaker tone around the equity markets further underpins the safe-haven JPY. This, along with the underlying bearish sentiment surrounding the US Dollar, exerts some downward pressure on the USD/JPY pair and contributes to the intraday slide.

In fact, the USD Index, which tracks the greenback against a basket of currencies, languishes near a multi-month low amid firming expectations for a less aggressive policy tightening by the Fed. The markets seem convinced that the US central bank will soften its hawkish stance and deliver a smaller 25 bps rate hike at the end of a two-day meeting on Wednesday. This keeps the US Treasury bond yields depressed and weighs on the USD.

Heading into the key central bank event risk, traders seem reluctant to place aggressive bearish bets around the USD/JPY pair. Apart from this, comments by BoJ Governor Kuroda Haruhiko, saying that the central bank must continue the easy policy and maintain the 2% inflation target, cap the upside for the JPY. This further warrants some caution before positioning for any meaningful downside for the major, at least for the time being.