USD/JPY is currently consolidating intraday losses around 131.20 as the US Dollar defends the previous day’s rebound from a two-month low heading into Thursday’s European session. However, the Yen pair remains on track to reverse last week’s gains amid downbeat Treasury bond yields.
A possible monetary policy divergence between the Bank of Japan (BoJ) and the US Federal Reserve (Fed) seems to weigh on the Yen pair of late. Talks of the BoJ’s exit from the easy money policy under the new Governor’s reign are emerging, especially as there prevail the need to reverse the 1.55 quadrillion yen ($11.7 trillion) of stimulus introduced during the last ten years of Kuroda’s leadership, according to Bloomberg.
On the other hand, CME’s FedWatch Tool indicates a nearly 57% chance that the US central bank will pause its rate hike trajectory in May.
Nevertheless, recession concerns resulting from consecutive weakness in the US employment numbers and contagion risk associated with the same weigh on sentiment while allowing the US Dollar to recover. As a result, the US Dollar Index (DXY) extends the previous day’s rebound from a two-month low to 102.00 by the press time, up 0.12% intraday.
It is essential to note that the US JOLTS Job Openings for February declined to the lowest levels in 19 months and bolstered job fears, while ADP Employment Change for March dropped to 145K from an expected 200K and an upwardly revised prior of 261K. In the same vein, the final readings of S&P Global Composite and Services PMIs for March also came in downbeat, as the former one declined to 52.3 from 53.3 preliminary estimations, while the Services PMI dropped to 52.6 from 53.8 anticipated earlier. More importantly, the US ISM Services PMI for the said month amplified pessimism as it dropped to 51.2 versus an expected 54.5 and a prior 55.1.
Geopolitical fears arising from China and North Korea also weigh on sentiment and back the USD/JPY rebound. Earlier in the day, US House of Representatives Speaker Kevin McCarthy’s talks with Taiwanese President Tsai Ing-Wen renewed the Sino-American tussles. Furthermore, North Korea on Thursday accused the U.S. and South Korea of escalating tensions to the brink of nuclear war through their joint military drills, vowing to respond with “offensive action,” state media KCNA reported per Reuters.
Amid these plays, S&P 500 Futures drop for the third consecutive day even if the benchmark US Treasury bond yields remain sluggish around the multi-day bottom. That said, the US 10-year Treasury bond yields dropped in the last five consecutive days, hitting a seven-month low on Wednesday, while the two-year counterpart also printed a four-day downtrend.
Going forward, headlines surrounding China and the second-tier US employment data are crucial for the intraday direction of the USD/JPY. However, major attention should be given to Friday’s US Nonfarm Payrolls (NFP) for a clear guide.
In terms of technical analysis, a daily closing below an 11-week-old support line, around 130.95 by the press time, becomes necessary for the USD/JPY bear’s conviction.
