USD/JPY bulls prod 136.00 amid firmer yields, US debt ceiling fears and dovish bias of BoJ’s Ueda

USD/JPY prints a three-day winning streak near 135.80 despite recently easing from the highest level in eight days as Tokyo opens on Monday. In doing so, the Yen pair takes clues from the broad US Dollar strength amid a risk-off mood, as well as cheers recently softer Japan data and dovish comments from Bank of Japan (BoJ) Governor Kazuo Ueda.

Recently, Japan’s Producer Price Index (PPI) for April dropped to 0.2% MoM and 5.8% YoY versus 0.3% and 6.0% expected respectively. The softer inflation data backs BoJ Governor Ueda’s comments defending the Japanese central bank’s easy money policy. “The central bank will maintain ultra-low interest rates until the recent cost-push inflation shifts into sustained price growth driven by robust domestic demand, and accompanied by higher wages,” said BoJ’s Ueda in his latest comments per Reuters.

On the other hand, Fed Governor Philip Jefferson and St. Louis Fed President James Bullard defend the US central bank’s current monetary policy while citing higher inflation as a major challenge. On the same line, Federal Reserve (Fed) Governor Michelle Bowman said Friday, “policy rate will need to remain sufficiently restrictive for some time.”

Unlike BoJ’s Ueda, The Fed policymakers’ comments fail to gain support from the US data as preliminary readings of the University of Michigan's (UoM) Consumer Confidence Index for May dropped to 57.7 from 63.5 prior versus 63.0 market forecasts. More interestingly, the one-year inflation expectations dropped from 4.6% to 4.5% for the said month but 5-year counterpart rose to the highest reading since 2011, from 3.0% to 3.2%.

Above all, concerns that the US may default in early June if the debt ceiling isn’t altered soon seem to weigh on the market sentiment and underpin the US Dollar’s run-up, fueling the USD/JPY in turn. On the same line were fears emanating from the US banks as some of the mid-tier ones posted heavy drawdowns in share prices and deposits in the last week.

It should be noted that the cautious mood ahead of Japan Prime Minister Fumio Kishida’s assessment of wages seems to prod the USD/JPY bulls. “Japanese Prime Minister Fumio Kishida will issue an order on Monday for the government and the central bank to conduct an assessment on whether recent wage hikes would be sustainable, the Nikkei newspaper reported on Sunday,” per Reuters.

Against this backdrop, Wall Street closed with losses and the US Treasury bond yields remain firmer while the S&P 500 Futures print mild losses by the press time.

Looking forward, the US NY Empire State Manufacturing Index for May and Japan PM Kishida’s orders will be eyed for immediate USD/JPY direction. More important will be the US debt ceiling updates for clear directions. Also important will be the Fed talks ahead of US Retail Sales, a speech from Fed Chairman Jerome Powell and preliminary readings of Japan’s first quarter (Q1) Gross Domestic Product (GDP).

Technical analysis

USD/JPY pair’s successful rebound from 50-DMA support of around 135.75 directs the Yen pair buyers towards the 200-DMA hurdle of near 137.30.