• USD/JPY continues with its struggle to make it through 145.00 and edges lower on Tuesday.
• Intervention fears lend some support to the JPY and seem to be a key factor exerting pressure.
• The Fed-BoJ policy divergence should lend support ahead of the FOMC minutes on Wednesday.

The USD/JPY pair comes under some selling pressure on Tuesday and reverses a major part of the previous day's positive move back closer to the 145.00 psychological mark. Spot prices remain depressed through the first half of the European session and currently trade just below mid-144.00s, down 0.15% for the day.

Speculations for a potential intervention by the Japanese government to curb any further sharp decline in the domestic currency turn out to be a key factor acting as a headwind for the USD/JPY pair. In fact, Japan's Finance Minister Shunichi Suzuki warned last week that the government will take appropriate steps should the Japanese Yen (JPY) weaken excessively. Adding to this, Japan’s top financial diplomat Masato Kanda said Tuesday that authorities were in close contact with US Treasury Secretary Janet Yellen and communicating with various countries over currencies.

Apart from this, worries about a global economic downturn further benefits the safe-haven JPY, which, along with subdued US Dollar (USD) price action, contributes to the mildly offered tone surrounding the USD/JPY pair. That said, a big divergence in the monetary policy stance adopted by the Bank of Japan (BoJ) and the Federal Reserve (Fed) helps limit the downside. In fact, market participants seem convinced that the BoJ will focus on supporting a fragile economic recovery and stick to its ultra-ease monetary policy settings amid a view that inflation will slow later this year.

In contrast, the  US central bank signalled in June that borrowing costs may still need to rise as much as 50 bps by the end of this year and the outlook was reinforced by Fed Chair Jerome Powell's last week. This, in turn, triggers a sharp intraday rise in the US Treasury bond yields and lends some support to the USD. That said, the softer US PCE Price Index released on Friday, along with Monday's weaker US ISM PMI, raises questions over how much headroom the Fed has to continue tightening its monetary policy, which, in turn, is holding back the USD bulls from placing aggressive bets.

Traders also seem reluctant in the wake of relatively thin trading volumes on the back of the Independence Day holiday in the US and ahead of this week's key releases. The minutes of the June FOMC meeting are due on Wednesday and will be closely scrutinized for clues about the future rate-hike path. Apart from this, the US monthly jobs data - popularly known as the NFP report on Friday - will influence the USD and provide a fresh directional impetus to the USD/JPY pair. The fundamental backdrop, meanwhile, suggests that the path of least resistance for spot prices is to the upside.

Technical levels to watch