USD/JPY bulls approach 135.00 as yield curve inversion widens, focus on Shunto talks, US Retail Sales

USD/JPY seesaws around intraday high as it extends the previous day’s recovery from the monthly low to 134.55 during early Wednesday. In doing so, the Yen pair cheers the recently widening difference between the US 10-year and two-year Treasury bond yields. Adding strength to the upside momentum could be the fears of a less efficient wage increase in Japan and the Bank of Japan (BoJ) policymakers’ rejection of the tighter monetary policy.

The US 10-year Treasury bond stays mostly pressured around 3.68%, fading the previous day’s bounce, but the two-year bond coupons rise to 4.33% by the press time. It’s worth noting that the US 10-year Treasury bond yields, marked the biggest daily gain in five weeks the previous day whereas the two-year counterpart recovered from the six-month low.

Earlier in the day, the Bank of Japan’s (BoJ) slightly dovish Monetary Policy Meeting Minutes underpinned the USD/JPY upside. “It is important to continue with monetary easing,” said the Bank of Japan (BoJ) Minutes statement. The BoJ Minutes also stated that the members agreed Japan's inflation is likely to slow toward the latter half of the next fiscal year.

On the other hand, Japan witnesses positive results from the initial rounds of annual wage discussions, prominently called ‘shunto’ talks, as the Asian major looks to control inflation while also want to stay far from deflation conditions. “Some of Japan's biggest firms have already promised large pay hikes including auto giant Toyota Motor Corp. and fashion brand Uniqlo parent Fast Retailing,” reported Reuters. The news mentioned that the anticipated 3.0% hike in wages would meet Kishida's call for 3% rise but fall short of the ambitious 5% demanded by the Rengo labor umbrella group.

Elsewhere, downbeat US inflation data, increasing optimism towards Fed’s 0.25% rate hike in March and mixed sentiment entertain USD/JPY traders of late. On Tuesday, the US Consumer Price Index (CPI) and CPI ex Food and Energy both matched 6.0% and 5.5% YoY market forecasts, versus 6.4% and 5.6% respective previous readings. “The Federal Reserve is seen raising its benchmark rate a quarter of a percentage point next week and again in May, as a government report showed U.S. inflation remained high in February, and concerns of a long-lasting banking crisis eased,” said Reuters following the US inflation data release.

Alternatively, the global policymakers’ inability to convince the market of the risks emanating from the latest fallouts of the Silicon Valley Bank (SVB) and Signature Bank seem to help the USD/JPY pair to remain firmer.

While portraying the mood, the S&P 500 Futures remain sidelined despite Wall Street’s upbeat closing but MSCI’s Index of Asia-Pacific shares ex-Japan rise 1.19% by the press time.

Looking ahead, US Producer Price Index, NY Empire State Manufacturing Index and Retail Sales for February will be important for USD/JPY traders to watch while yields and shunto talks may offer additional directives to the Yen pair traders.

Technical analysis

An area comprising multiple tops marked since February 17, near 135.05-15, restricts immediate USD/JPY upside. Even if the quote traces the bullish MACD signals and crosses the 135.15 resistance, a convergence of the 50-SMA and the 100-SMA, around 135.65-70 by the press time, will be crucial to watch.

Meanwhile, a five-week-old horizontal support area near 133.90-85 appears a tough nut to crack for the Yen pair bears.