• USD/JPY lacked any firm directional bias and consolidated its recent gains to a multi-day high.
• Recession fears benefitted the safe-haven JPY and capped gains amid sliding US bond yields.
• Modest USD strength acted as a tailwind as the focus remains on Fed Chair Powell’s speech.

The USD/JPY pair oscillated in a narrow trading range on Wednesday and consolidated its recent gains recorded over the past three sessions. Spot prices moved back above the 136.00 mark during the early European session, with bulls eyeing a multi-day peak touched the previous day.

The US dollar built on the overnight strong move up and gained some follow-through traction during the early part of trading on Wednesday. This, along with the divergent monetary policy stance adopted by the Bank of Japan and the Federal Reserve, acted as a tailwind for the USD/JPY pair. That said, a combination of factors held back bulls from placing aggressive bets and kept a lid on any meaningful upside for spot prices.

The market sentiment remains fragile amid concerns that a more aggressive move by major central banks to curb soaring inflation would pose challenges to the global economic recovery. This, in turn, offered support to the safe-haven Japanese yen. The flight to safety triggered a fresh leg down in the US Treasury bond yields, which narrowed the US-Japan rate differential and further collaborated to capping gains for the USD/JPY pair.

Traders also seemed reluctant and preferred to move on the sidelines ahead of Fed Chair Jerome Powell's speech at the ECB forum in Sintra, due later during the North American session. Investors will look for fresh clues about the Fed's policy tightening path, which will play a key role in influencing the near-term USD price dynamics. This, in turn, will help investors to determine the next leg of a directional move for the USD/JPY pair.

Technical levels to watch