USD/JPY climbs closer to mid-147.00s; lacks bullish conviction amid BoJ-Fed divergence

• The USD/JPY attracts buyers on Thursday, although it remains confined in a multi-week-old range.
• The divergent BoJ-Fed policy expectations could cap any further move higher for spot prices.
• Traders now look to flash global PMIs for some impetus ahead of Fed Chair Powell on Friday.

The USD/JPY pair is building on the overnight modest rebound from the 146.85 region, or the weekly trough, and gaining some positive traction during the Asian session on Thursday. Spot prices, however, remain confined in a three-week-old range and currently trade around mid-147.00s, awaiting a fresh catalyst before the next leg of a directional move.

In the meantime, the uncertainty over the likely timing of the next interest rate hike by the Bank of Japan (BoJ) continues to act as a headwind for the Japanese Yen (JPY). Apart from this, the recent rise in the US Dollar (USD), bolstered by reduced bets for a more aggressive policy easing by the Federal Reserve (Fed) in September, offers some support to the USD/JPY pair.

The upside, however, remains capped amid the divergent BoJ-Fed policy expectations. In fact, the BoJ is still anticipated to stick to its policy normalization path, while the Fed is expected to resume its rate-cutting cycle in September. This, in turn, holds back traders from placing aggressive directional bets around the USD/JPY pair and leads to the range-bound price action.

Meanwhile, the S&P Global flash Japan Manufacturing PMI improved to 49.9 in August from the previous month's final reading of 48.9, though it remained in contraction territory for the second straight month. This, however, fails to provide any meaningful impetus to the USD/JPY pair, which also reacted little to the Minutes from the July FOMC meeting released on Wednesday.

The Minutes revealed that most participants viewed it as appropriate to leave interest rates unchanged, and noted that it would take time to have more clarity on the magnitude and persistence of higher tariffs' effects on inflation. Moreover, policymakers assessed that the impact of tariffs had become more apparent, but the overall effects on the economy, inflation remained to be seen.

Nevertheless, the aforementioned fundamental backdrop makes it prudent to wait for strong follow-through buying before positioning for any further near-term appreciating move. Traders now look forward to the release of the flash global PMIs for short-term opportunities on Thursday, though the focus remains on Fed Chair Jerome Powell's speech at the Jackson Hole Symposium.