• USD/JPY turns lower for the second straight day on Thursday amid renewed USD selling.
• Diminishing odds for a larger Fed rate hike in September continue to weigh on the buck.
• The Fed-BoJ policy divergence and a positive risk tone could undermine the safe-haven JPY.
• A convincing break below the post-US CPI swing low is needed to confirm a fresh breakdown.

The USD/JPY pair retreats nearly 90 pips from the daily high and drops to a fresh daily low during the First half of the European session on Thursday. The pair is currently placed below mid-132.00s, still well above a one-and-half-week low touched the previous day.

The US dollar struggles to preserve its modest intraday recovery gains and meets with a fresh supply, which, in turn, is seen exerting some downward presure on the USD/JPY pair. Softer US inflation figures released on Wednesday forced investors to trim their bets for a more aggressive policy tightening by the Fed. Apart from this, a modest downtick in the US Treasury bond yields continues to weigh on the buck.

The Fed, however, is still expected to hike interest rates by at least 50 bps at the September policy meeting. In contrast, the Bank of Japan has repeatedly said that it will stick to its ultra-easy policy settings. The resultant Fed-BoJ monetary policy divergence, along with a generally positive tone around the equity markets, could undermine the safe-haven Japanese yen and offer support to the USD/JPY pair.

From a technical perspective, the overnight rejection slide from the 50-day SMA was seen as a fresh trigger. That said, it would be prudent to wait for a convincing break below the 132.00 mark, or the post-US CPI low before positioning for any further depreciating move. On the flip side, the daily swing high, around the 133.30 region, could now act as an immediate strong hurdle for the USD/JPY pair, at least for now.

Market participants now look forward to the US economic docket, featuring the release of the Producer Price Index (PPI) later during the early North American session. This, along with the US bond yields, might influence the USD price dynamics and provide some impetus to the USD/JPY pair. Traders would further take cues from the broader market risk sentiment to grab short-term opportunities around the pair.

Technical levels to watch