USD/JPY grinds higher towards 128.60s amidst risk-off and BoJ Kuroda’s dovish comments

The USD/JPY posted modest gains early in the New York session, from around 128.69 highs, despite falling US Treasury yields and a risk-off market mood. At the time of writing, the USD/JPY is trading at 128.68.

Global equities are being damaged by a risk-off market mood, while most global bond yields rise, except in the US. On Thursday, in an IMF panel, Fed’s Chair Powell aligned with the hawk chorus led by St. Louis President James Bullard and said that a hike of 50 bps “is on the table for the May meeting,” while emphasizing that he favors “front-end loading” its tightening cycle. Powell added that the US central bank wouldn’t count on the supply side healing to help inflation, implying that the Fed is focused on the demand side.

Elsewhere, James Bullard, St. Louis Fed President, admitted that the Fed is behind the curve but not as everybody thinks while adding that the Fed has hiked 75 bps before without the world coming to an end.

Meanwhile, money market futures have priced in a 100% chance of a 50 bps increase in May and June meetings, while the odds of a 75 bps remain lower.

Aside from this, the Japanese Minister of Finance (MoF) Suzuki discussed the possibility of coordinated intervention in the FX markets with US Treasury Secretary Janet Yellen, as reported. The MoF Suzuki said that he discussed the abrupt moves in the yen with Yellen and that the two agreed to uphold existing FX agreements.

Of late, the Bank of Japan (BoJ) Governor Haruiko Kuroda said that the economy is not so vulnerable as to need more easing, emphasizing that until CPI reaches and stays above 2% in a stable manner, it will continue its current stance.

Data-wise, the Japanese docket features inflation, which came at 1.2% y/Y as expected, while the core Consumer Price Index (CPI) aligned with the estimations at 0.8% y/y. The S&P Global Flash US Manufacturing PMI rose by 59.7, higher than the 68.2 estimations, and smashed March’s figures on the US front.

USD/JPY Price Forecast: Technical outlook

Since the middle of the week, the USD/JPY consolidated in the 127.80-129.10 area. The YTD high at 129.10 appears to hold for now, but the Relative Strength Index (RSI) at 79.59 in overbought territory suggests a lower correction is on the cards.

If that scenario plays out, the USD/JPY first support would be April 20 daily low at 127.45. Break below would expose April 2001 cycle highs around 126.85, followed by April’s 12 daily high at 126.31.

Upwards, the USD/JPY first resistance would be 129.00. A breach of the latter would expose the YTD high at 129.10, followed by the 130.00 line of the sand, expressed by Mr. Yen.