- USD/JPY attracted some dip-buying near the 113.35 region, though lacked follow-through.
- Elevated US bond yields extended some support; a modest USD weakness capped gains.
- Investors now eye the US CPI report and FOMC minutes for a fresh directional impetus.
The USD/JPY pair reversed an intraday dip and climbed back above mid-113.00s, closer to the top end of its daily trading range during the early European session.
The pair attracted some dip-buying on Wednesday and recovered over 25 pips from the daily swing lows, around the 113.35 region, though lacked any strong follow-through. The recent widening of the US-Japanese government bond yield differential was seen as a key factor that drove flows away from the Japanese yen and extended some support to the USD/JPY pair.
The US bond yields have been rallying since late September when the Fed signalled that it would begin tapering its bond purchases by the end of 2021. In fact, the yield on the benchmark 10-year US government bond shot to four-month tops on Friday. On the other hand, the Bank of Japan's yield curve control policy held the yield on the 10-year Japanese government bond near zero.
The markets might have also started pricing in the possibility of an interest rate hike in 2022 to counter the risk of inflation becoming too high. This was seen as another factor that pushed the bond yields higher. That said, a modest US dollar weakness kept a lid on any further gains for the USD/JPY pair amid a softer risk tone, which tends to benefit the safe-haven JPY.
Worries that a widespread rally in commodity prices will stoke inflation and signs of a global economic slowdown have been fueling speculations about the return of stagflation. Apart from this, fears about a spillover from China Evergrand's debt crisis weighed on investors sentiment. This was evident from the prevalent caution mood around the global equity markets.
Apart from this, overbought conditions on short-term charts might further hold bullish traders from placing aggressive bets around the USD/JPY pair. Investors now await the release of the US consumer inflation figures and the FOMC monetary policy meeting minutes to gauge the Fed's path on normalizing monetary policy.
This will play a key role in influencing the near-term USD price dynamics. This, along with the broader market risk sentiment, should determine the next leg of a directional move for the major.
Technical levels to watch
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
USD/JPY holds above 155.50 ahead of BoJ policy announcement
USD/JPY is trading tightly above 155.50, off multi-year highs ahead of the BoJ policy announcement. The Yen draws support from higher Japanese bond yields even as the Tokyo CPI inflation cooled more than expected.
AUD/USD extends gains toward 0.6550 after Australian PPI data
AUD/USD is extending gains toward 0.6550 in Asian trading on Friday. The pair capitalizes on an annual increase in Australian PPI data. Meanwhile, a softer US Dollar and improving market mood also underpin the Aussie ahead of the US PCE inflation data.
Gold price keeps its range around $2,330, awaits US PCE data
Gold price is consolidating Thursday's rebound early Friday. Gold price jumped after US GDP figures for the first quarter of 2024 missed estimates, increasing speculation that the Fed could lower borrowing costs. Focus shifts to US PCE inflation on Friday.
Stripe looks to bring back crypto payments as stablecoin market cap hits all-time high
Stripe announced on Thursday that it would add support for USDC stablecoin, as the stablecoin market exploded in March, according to reports by Cryptocompare.
Bank of Japan expected to keep interest rates on hold after landmark hike
The Bank of Japan is set to leave its short-term rate target unchanged in the range between 0% and 0.1% on Friday, following the conclusion of its two-day monetary policy review meeting for April. The BoJ will announce its decision on Friday at around 3:00 GMT.