USD/JPY retreats from YTD top near 139.70 as BoJ’s Ueda praises Japan’s economic transition

• USD/JPY eases from the highest levels in six months as Yen bears take a breather.
• BoJ’s Kuroda cites welcome signs of economic development but defends easy money policy.
• Mixed Fed talks, FOMC Minutes and anxiety about US debt ceiling issue keep Yen pair traders on a dicey floor.
• Risk catalysts, bond market moves are the key for clear directions.

USD/JPY bulls take a breather after refreshing the Year-To-Date (YTD) high, declining to 139.50 amid early hours of Thursday’s European session. In doing so, the Yen pair reveres the intraday gains but remains dismal amid mixed markets.

That said, Bank of Japan (BoJ) Governor Kazuo Ueda recently crossed wires, via Reuters, as he said that they are beginning to see good signs in the economy but still some distance to stably, sustainably hitting the inflation target. The policymaker also stated, “BoJ will patiently sustain the easy monetary policy.”

On the other hand, US Treasury bond yields remain firmer at the highest levels since mid-March and put a floor under the USD/JPY prices. Recently, a downward revision in Germany’s Q1 GDP renews recession fears in the European powerhouse and hence allowed the US Dollar to remain firmer, as well as back the bond coupons at the multi-day high.

While BoJ’s Ueda defends easy money policy, the Minutes of the latest Federal Open Market Committee (FOMC) Meeting, the policymakers are divided about the latest 0.25% rate hike from the US central bank. The same doubts the market’s bets on another such move in June even if Atlanta Fed President Raphael Bostic and Federal Reserve Governor Christopher Waller prod the hawkish Fed concerns.

Above all, the US policymakers’ inability to deliver a debt ceiling extension deal and the looming long weekend for the House Representatives contrasts with the negotiators’ view that they see progress in the latest rounds of talks. Even so, global rating agencies like Fitch and Moody’s turned cautious about the US credit rating status while the US Treasury Department accepted their fears. With this, the market’s rush towards risk safety gains momentum and propels the US Dollar, as well as the yields.

Amid these plays, the US stock futures lick its wounds while the US Treasury bond yields remain firmer at the highest levels since mid-March.

While the USD/JPY buyers take a breather, they’re not off the table amid fears surrounding the US default and divergence between the Fed and BoJ policies. Apart from these catalysts, the US weekly Jobless Claims, the Chicago Fed National Activity Index and Pending Home Sales should also be eyed for clear directions.

Technical analysis

USD/JPY prods the 50% Fibonacci retracement level of its October 2022 to January 2023 downside amid overbought conditions of the RSI (14) line. Apart from the 50% Fibonacci retracement level surrounding 139.60, the late November 2022 peak of around 139.90, quickly followed by the 140.00 round figure, also challenge the Yen pair sellers.

Meanwhile, the previous resistance line stretched from December 2022, close to 137.80 at the latest, restricts the immediate downside of the USD/JPY pair.