USDJPY retreats towards 143.00 as risk aversion fades, yields grind lower

  • USD/JPY clings to mild gains during the first daily loss in three.
  • Light calendar, market’s positioning for US inflation and challenges to previous risk-off mood prod Yen pair buyers.
  • Yields remain depressed as market players rush to Treasury bonds amid sour sentiment.
  • Fed needs strong US inflation to defend hawks and USD/JPY bulls, highlighting Thursday’s US CPI.

USD/JPY remains on the back foot around 143.00 heading into Wednesday’s European session as it prints the first daily loss in three.

It’s worth noting, however, that the market’s inaction could be witnessed in the Yen pair’s latest momentum even if the US Dollar pares previous gains amid a shift in the sentiment. Also likely to have prod the risk-barometer pair could be the market’s preparations for the top-tier inflation clues from Japan and the US.

The improvement in China’s factory-gate inflation, namely the Producer Price Index (PPI), joins risk-positive news from the Biden Administration to tame the market’s previous pessimism and allows the Yen pair buyers to take a breather.

Previously, Italy’s surprise tax on the bank’s windfall profits, the global rating agencies’ downward revision of the US banks and financial institutions weighed on the sentiment on Tuesday and fuelled the USD/JPY. On the same line could be fears of the UK recession and slowing economic growth in China, not to forget Beijing’s geopolitical tension with Japan and the US.

On a different page, the recent downbeat performance of the US and Japanese Treasury bond yields, as well as fears about the Japan-China tension due to Tokyo’s friendship with Taiwan, also seem to weigh on the USD/JPY pair.

That said, the US 10-year Treasury bond yields remain pressured at the lowest level in a week marked the previous day, around 4.0%, whereas the 10-year Japanese Government Bonds (JGB) drops to the lowest levels in eight days to 0.58% by the press time.

It’s worth noting that the lower JGB yields defend the Bank of Japan’s (BoJ) easy-money policy while softer US bond coupons join the mildly bid S&P500 Futures to drag the US Dollar Index (DXY) from a 10-week-old falling resistance line.

Looking ahead, the ongoing weakness in the Treasury bond yields may allow the USD/JPY to consolidate weekly gains ahead of Thursday’s Japan Producer Price Index (PPI) and the US Consumer Price Index (CPI) data for July.

Technical analysis

Although a clear recovery from the 50-DMA, around 141.50 by the press time, joins the upbeat oscillators to defend the USD/JPY buyers, a downward-sloping resistance line from October 2022, close to 143.80 at the latest appears a tough nut to crack for the bulls.

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