USD/JPY leans bullish above 134.00, traces firmer yields ahead of Fed Minutes

• USD/JPY extends the previous day’s run-up at weekly top.
• Japan’s trade numbers, Tankan sentiment data came in firmer but Machinery Orders eased.
• Yields stay firmer even as fears of economic slowdown, geopolitical tussles escalate.
• US Retail Sales, FOMC Meeting Minutes will be important for fresh impulse.

USD/JPY holds onto the latest bullish bias while picking up bids to refresh the intraday high near 134.40 as Tokyo opens on Wednesday. The yen pair’s latest run-up could be linked to the firmer yields.

In doing so, the quote ignores the US dollar pullback while trying to justify the mixed data at home and abroad.

That said, Japan’s Merchandise Trade Balance dropped to ¥-1,436.8B in July versus ¥-1,405B expected and the previous reading of ¥-1,383.8B. Further details suggest an improvement in Exports and Imports during the stated month. Also positive were the Tankan Manufacturing Survey results for August. “Japanese manufacturers' business confidence improved in August after last month's stall, while service-sector firms' mood rose for a second month to the highest point in nearly three years, the Reuters Tankan poll showed,” per Reuters.

Additionally, Japan's core machinery orders rose 0.9% in June from the previous month, government data showed on Wednesday, lower than a 1.3% increase expected by economists in a Reuters poll.

On the other hand, US Industrial Production grew 0.6% in July versus 0.3% expected and upwardly revised 0.0% prior whereas Building Permits also increased to 1.674M MoM during the stated month versus 1.656 market expectations and 1.696M previous readings. It should be noted that the Housing Starts dropped to 1.446M from 1.599M prior and 1.54M expected.

The US Dollar Index (DXY) refreshed its three-week high before reversing from 106.94. The greenback’s gauge versus six major currencies previously benefited from the flight to safety as China’s readiness for multiple measures to tame recession woes joined Europe’s signals to renew the nuclear deal with Iran while pushing back plans for the closure of Germany’s last three nuclear power plants. On the same line was the Washington Post (WaPo) news that Chinese authorities ordered factories to suspend production in several major manufacturing regions to preserve electricity, as the country faces the worst heat wave in six decades.

On the same line was the latest news from Japanese media suggesting Russian alerts to Japanese companies about the Sakhalin-2 transfer plan and high-level talks between Japan and China.

Against this backdrop, Wall Street managed to close on the positive side, despite retreating by the end of the day. That said, the US 10-year Treasury yields snapped a two-day downtrend by regaining 2.80% at the latest. It should be noted that the US 10-year Treasury yields keep the previous day’s rebound at 2.82% while the S&P 500 Futures print mild losses at the latest.

Looking forward, US Retail Sales for July, expected 0.1% versus 1.0% prior, will entertain USD/JPY traders ahead of the Federal Open Market Committee (FOMC) meeting minutes, which will be eyed for the clues of the 0.75% rate hike in September.

Also read: FOMC July Minutes Preview: Can it influence September Fed rate hike expectations?

Technical analysis

A daily closing beyond the monthly resistance line, now support around 134.20, directs USD/JPY towards the 50-DMA hurdle surrounding 135.40.