USD/JPY picks up bids above 134.00 as BoJ vs. Fed battle intensifies amid strong yields

The USD/JPY currency pair reversed the previous day’s pullback from a six-week high, as upbeat US data and risk-aversion propelled the Yen pair near the multi-day top. The firmer US Treasury bond yields, hawkish Federal Reserve (Fed) policymakers and Bank of Japan (BoJ) talks that defended current policy drove the pair upward.

At the time of writing, USD/JPY is trading near the 1.5-month high, following a retreat from the multi-day top, as the Yen pair renews its intraday high near 134.20 as Tokyo opens for Friday. The US 10-year Treasury bond yields rose to a fresh high since December 30, 2022, up 3.5 basis points to 3.87% by the press time. On the same line, two-year US Treasury bond yields printed mild gains to end Thursday around 4.64%, the highest levels since November 2022, making rounds 4.65% at the latest.

These strong Treasury bond yields could be attributed to the upbeat US data and hawkish comments from the Fed policymakers. Cleveland Fed President Loretta Mester teased the recession woes while repeating the previous defense of the highest rates. St. Louis Federal Reserve’s James Bullard said, “Continued policy rate increases can help lock in a disinflationary trend during 2023, even with ongoing growth and strong labor markets, by keeping inflation expectations low.”

The Bank of Japan (BoJ) Officials also appeared to be cautious about the current policy. Japan’s Finance Minister (FinMin) Shun’ichi Suzuki tried to sell the idea that the latest BoJ nominations are perfect to defend the central bank’s latest role, which hints at a prolonged easy money policy and weigh on the Japanese Yen (JPY).

In terms of data, the US Producer Price Index (PPI) for January gained major attention from the USD/JPY buyers as it jumped the most since June with 0.7% MoM figure. The improvement in the US Initial Jobless Claims for the week ended on February 10, 194K versus 200K expected and 195K prior also helped the pair. However, a slump in the Housing Starts for January and the Philadelphia Fed Manufacturing Survey for February seemed to have gained a little attention.

The fresh US-China tension and Russia’s refrain from stepping back when it comes to attacking Ukraine also weighed on the risk appetite and the EUR/USD prices, due to the US Dollar’s safe-haven demand. US President Joe Biden fired shots at his Chinese counterpart while conveying the expectations for a talk with the Chinese leader, during an interview with NBC News.

Wall Street closed negative and the S&P 500 Futures dropped 0.30% intraday by the press time. USD/JPY buyers are likely to keep the reins and may propel the price towards refreshing the multi-day high above 134.00 amid a lack of major data/events on the calendar.

From a technical perspective, a successful daily closing beyond the 200-day Exponential Moving Average (EMA), around 133.80 by the press time, directs USD/JPY toward the 100-day EMA resistance surrounding 134.75-80. If the pair manages to break this resistance, it could open up further upside potential towards the 135.00 psychological mark. On the flip side, if the pair fails to surpass the 100-day EMA, it could pull back towards the 133.00 support level.

In conclusion, the USD/JPY currency pair is likely to remain supported by the upbeat US data, hawkish Federal Reserve talks, and risk-aversion. The Bank of Japan (BoJ) talks and the technical levels are also likely to keep influencing the pair’s movement in the near-term.


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