• USD/JPY witnessed some selling on Thursday and moved further away from a 24-year high.
• Recession fears, the risk-off mod benefitted the safe-haven JPY and exerted some pressure.
• Sliding US bond yields kept the USD bulls on the defensive and contributed to the selling bias.
• The Fed-BoJ policy divergence helped limit losses and supports prospects for some dip-buying.

The USD/JPY pair witnessed some selling on Thursday and snapped a four-day winning streak to its highest level since September 1998, around the 137.00 mark touched the previous day. The pair remained depressed through the first half of the European session, though showed resilience below the 136.00 mark and has now recovered a few pips from the daily low.

Investors remain concerned that rapidly rising interest rates and tighter financial conditions would pose challenges to global economic growth. This was evident from the prevalent risk-off mood and benefitted the safe-haven Japanese yen. The anti-risk flow, along with recession fears, dragged the US Treasury bond yields, which kept the US dollar bulls on the defensive and exerted downward pressure on the USD/JPY pair.

That said, the divergent policy stance adopted by the Fed and the Bank of Japan acted as a tailwind for spot prices. Speaking at the ECB's annual forum on Wednesday, Fed Chair Jerome Powell reaffirmed bets for more aggressive rate hikes and said that the US economy is well-positioned to handle tighter policy. Powell added that the Fed remains focused on getting inflation under control and the market pricing is pretty close to the dot plot.

In contrast, the BoJ has signalled that it would stick to its ultra-accommodative policy and reiterated its guidance to keep borrowing costs at "present or lower" levels. The Japanese central bank had also pledged to guide the 10-year yield to around 0% and intervene to keep rates from moving higher. This, in turn, helped limit any further losses and assisted the USD/JPY pair to rebound around 25-30 pips from the daily low.

Market participants now look forward to the US economic docket, featuring the Core PCE Price Index - the Fed's preferred inflation gauge - and the usual Weekly Initial Jobless Claims. Apart from this, the US bond yields, the USD price dynamics and the broader risk sentiment should provide some impetus to the USD/JPY pair. Nevertheless, the fundamental backdrop still seems tilted firmly in favour of bullish traders.

Technical levels to watch