• US dollar retreats across the board amid an improvement in risk sentiment.  
• Yen trims losses versus the dollar, drops further versus other currencies.
• USD/JPY overbought but still pointing to the upside.

The USD/JPY peaked at 144.98 on Wednesday, the highest level since 1998. After being unable to break above 145.00 the rally lost momentum and it pulled back to 144.20, on the back of a broad-base correction of the US dollar.

The greenback moved off highs during the American session as Wall Street turned positive. As of writing, the Dow Jones was up by 0.80% and the Nasdaq by 0.87%. The improvement in risk sentiment avoided a general recovery of the yen.

The Japanese yen trimmed losses against the dollar but it printed fresh lows versus most of the currencies. The DXY was in red for the day at 110.15 after hitting a multi-year high at 110.78.

The USD/JPY is still up more than 400 pips from Tuesday’s opening level. The divergence between the Fed and the Bank of Japan continues to be the key driver of the rally. The 145.00 zone has become the new resistance. On the downside, 144.20 is the immediate support followed by 143.40.

Later on Wednesday, the Federal Reserve will release the Beige Book. On Thursday, Q2 growth data from Japan is due.

Technical levels