USD/JPY traces sluggish yields below 136.00, Fed’s Powell, BoJ’s Kuroda in the spotlight

• USD/JPY fades the week-start corrective bounce amid market’s inaction.
• Treasury bond yields defend previous retreat from multi-month high despite failing to extend the fall.
• BoJ’s Kuroda has the last shot to fire before leaving the Governorship in April; Fed’s Powell may defend the hawks.
• US jobs report for February, Japan's GDP may act as extra catalyst to watch for fresh impulse.

USD/JPY retreats to 135.80 as it reverses the bounce off intraday low amid a sluggish start to the key week. The Yen pair trader’s cautious mood ahead of the Bank of Japan (BoJ) monetary policy meeting and Federal Reserve (Fed) Chairman Jerome Powell’s half-yearly Testimony appears to be the key filters for the Yen pair. Also challenging the quote’s moves could be the latest inaction of the US Treasury bond yields, as well as the mixed signals from China.

The US benchmark bond coupon, namely the 10-year Treasury bond yields, rose to the highest levels since November 2022 in the last week before easing to 3.95% by the end of Friday, making rounds to the same level at the latest. More importantly, the US two-year bond coupons rose to the highest levels last seen in 2008 before retreating to 4.85% by the press time.

It’s worth noting that the receding optimism about the Fed’s hawkish moves, mixed US data, and the Fed policymakers’ failure to impress USD/JPY bulls seem to weigh on the yields of late. Furthermore, China’s expectations of modest growth for 2023 and the Sino-American tension are extra filters for traders.

During the last week, the US ISM Services PMI for February came in as 55.1 versus 54.5 market expectations and 55.2 market forecasts. Previously in that week, the US Durable Goods Orders for January eased while the Conference Board’s (CB) Consumer Confidence also flashed mostly downbeat details.

With this, Federal Reserve Bank of Atlanta President Raphael Bostic renewed concerns about the Fed’s policy pivot as the decision-maker said, “The central bank could be in a position to pause the current tightening cycle by mid to late summer.”

However, San Francisco Federal Reserve Bank President Mary Daly said during the weekend that if data on inflation and the labor market continues to come in hotter than expected, interest rates will need to go higher, and stay there longer, than Fed policymakers projected in December, as reported by Reuters. On the same line, US Federal Reserve published a semi-annual Monetary Policy Report on Friday: "Ongoing increases in the Fed funds rate target are necessary.” The report also stated that the Fed is committed to reducing inflation to 2%.

It’s worth noting that the BoJ officials and incoming board members have recently defended the Japanese central bank’s ultra-easy monetary policy, which puts a floor under the USD/JPY prices. Further, expectations that BoJ Governor Haruhiko Kuroda may play its last ball with all strength also keep the yen pair buyers hopeful despite the latest weakness in the quote.

On the other hand, Fed’s Powell may have a tough time convincing markets amid pivot talks and mixed data. Even if he does, the US Nonfarm Payrolls (NFP) will be watched closely for clear directions.

Technical analysis

The latest U-turn from the 100-DMA and the downside break of the one-month-old previous support line keep USD/JPY sellers hopeful. Also challenging the Yen pair buyers is the 200-DMA hurdle surrounding 137.40.