USD/JPY steadies above 136.00 as yields pause previous retreat, BoJ dovish stance appears safe

• USD/JPY struggles to extend the week-start pullback from two-month high.
• Yields remain lackluster; stock futures print mild gains amid month-end positioning.
• Second-tier positives for sentiment also push back the Yen pair sellers.
• Incoming BoJ Board pours cold water on face of hawkish expectations; defend YCC moves, though.

USD/JPY treads water around 136.10-20 during Tuesday’s Asian session while portraying the market’s inaction amid the month-end positioning and a lack of major data/events. Even so, dovish comments from the incoming Bank of Japan (BoJ) officials join cautious optimism to put a floor under the Yen price after it reversed from the two-month high on Monday.

Recently, Incoming Bank of Japan (BoJ) Deputy Governor Shinichi Uchida testified before the Japanese parliament’s Upper House while defending the central bank’s easy money policy. In doing so, Uchida rules out hopes of altering the 2.0% inflation target and bolstering the Yield Curve Control (YCC) policy.

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Previously, BoJ Deputy Governor Masazumi Wakatabe said, “Central banks must remain on guard against the potential dangers of secular stagnation, and low inflation as price rises driven by cost-push factors do not last long,” per Reuters.

It should be noted that the downbeat prints of Japan's Industrial Production (IP) for January contrasted with a welcome growth in the nation’s Retail Trade numbers but failed to provide any clear directions to the USD/JPY. That said, Japan’s IP shrunk by 4.6% in January versus -the 2.6% expected and 0.3% prior growth. However, the Retail Trade grew 1.9% MoM seasonally adjusted from 1.1% prior and -0.2% market forecasts.

On the other hand, market sentiment improves on headlines suggesting that the US offers an olive branch to Chinese companies despite its political differences with the dragon nation and hence challenges the USD/JPY bears due to the quote’s risk-barometer status. “Despite fraying relations with Beijing, US President Joe Biden is expected to forego expansive new restrictions on American investment in China, denying a push by some hawks in his administration and Congress,” reported Politico late Monday.

Elsewhere, mixed US data jostled with the hawkish Fed speak and the US-China tension contributing to the need for market clarity. That said, US Durable Goods Orders slumped -4.5% in January versus -4.0% expected and 5.1% prior. However, the Nondefense Capital Goods Orders ex Aircraft grew 0.8% versus 0.0% analysts’ expectations and -0.3% previous readings. Similarly, the US Pending Home Sales rallied 8.0% MoM versus 1.0% expected and 1.1% prior.

Further, Federal Reserve Governor Philip Jefferson said on Monday that getting back to 2% inflation is important to allow those sustained economic gains. Reuters also portrayed hawkish Fed concerns while saying, “Economic data this month reflected still tight jobs markets and inflation remaining sticky, leading Fed funds futures traders to bet on higher rates, which in the US are now seen peaking in September at 5.4%, up from 4.58% now.” Hence, the hawkish Fed concerns probe the risk-takers. On the same line could be the Sino-American tension surrounding Taiwan and Russia.

Moving on, USD/JPY traders should pay attention to the risk catalysts ahead of the second-tier US data for clear directions.

Technical analysis

Despite reversing from a three-week-old ascending resistance line, around 136.90 by the press time, USD/JPY remains bullish unless breaking the 200-day Exponential Moving Average (EMA) support of 133.90.