USD/JPY holds above mid-136.00s

- USD/JPY oscillates in a narrow trading band amid subdued trading action on Thursday.

- A combination of factors undermines the JPY and extends some support to the major.

- Bets for less aggressive Fed rate hikes keep the USD bulls on the defensive and cap gains.

The USD/JPY pair lacks any firm directional bias and seesaws between tepid gains/minor losses through the early European session on Thursday. The pair, however, manages to hold its neck above the daily low and is currently placed around the 136.65-136.70 area, nearly unchanged for the day.

The Japanese Yen is weighed down by the weaker domestic data, showing an unexpected current account deficit and an economic contraction during the third quarter. Apart from this, a goodish rebound in the US Treasury bond yields widens the US-Japan rate differential and further contributes to driving flows away from the JPY. This, in turn, assists the USD/JPY pair to attract some buying near the 136.25 region.

The intraday uptick, however, lacks bullish conviction and runs out of steam near the 137.25 zone amid subdued US Dollar demand. Expectations that the Fed will slow the pace of its policy tightening cycle keeps the USD bulls on the defensive and caps the upside for the USD/JPY pair. That said, the incoming positive US macro data has been fueling speculations that the Fed might lift rates more than recently projected.

This, in turn, holds back traders from placing aggressive bets around the USD/JPY pair and leads to a range-bound price action. Hence, the focus will remain glued to the upcoming FOMC policy meeting on December 13-14. Heading into the key central bank event risk, investors will confront the release of the latest US consumer inflation figures, which should influence the Fed's policy outlook and drive the USD demand.

This, in turn, will help determine the next leg of a directional move for the USD/JPY pair. In the meantime, traders on Thursday will take cues from the release of the usual Weekly Initial Jobless Claims data from the US, due later during the early North American session. This, along with the US bond yields and the broader market risk sentiment, will be looked upon for short-term trading opportunities around the USD/JPY pair.

Technical levels to watch

USD/JPY