USD/JPY bounces off lows, still in red below 113.00 handle

   •  JPY gains after BOJ trims JGB purchases.
   •  Further weighed down by subdued USD price action.

The USD/JPY pair extended overnight retracement slide from 1-1/2 week tops and corrected farther below the 113.00 handle through the Asian session on Tuesday.

The pair met with some heavy supply and dropped to an intraday low level near mid-112.00s after the BOJ announced that it would trim its purchases of 10 to 25-year debt to ¥190 billion, down from the ¥200 billion previous. 

Purchases of 25-years+ bonds were also scaled back to ¥80 billion, from the ¥90 billion previous, and the action was now seen as a signal that the BOJ might be moving towards normalization of monetary policy.

The selling pressure seems to have abated, with the pair quickly rebounding around 20-25 pips from session lows amid hopes for at least three interest rate hikes by the Fed in 2018.

It would now be interesting to see if the pair is able to build on the rebound or enters a consolidation phase amid subdued action surrounding the US Dollar and virtually empty US economic docket.

Technical levels to watch

Any subsequent up-move might now confront immediate resistance near the 113.00 handle, above which the pair seems all set to retest the 113.35-40 supply zone. On the flip side, weakness below mid-112.00s is likely to accelerate the slide towards 100-day SMA support near the 112.15 region before the pair eventually drops to the 112.00 handle.