USD/JPY treads water below 138.00 as US Dollar, Treasury bond yields struggle ahead of US inflation

USD/JPY traders witness a lack of direction as the quote grinds higher around 137.70 during the early Tuesday in Europe, after refreshing the multi-day top in the Asian session.

The yen pair’s latest inaction could be linked to a lack of major data/events, as well as the cautious mood ahead of the US Consumer Price Index (CPI) for November. It should be noted that the mixed concerns surrounding the Bank of Japan’s (BOJ) next moves and sluggish US Treasury yields also restrict the immediate USD/JPY moves.

Recently, Bloomberg released an analysis, relying on the data from the Japanese Bankers Association, which challenges the market’s hopes of the BOJ’s monetary policy tightening. “Japan’s financial regulator is examining how vulnerable lenders would be to a sudden slump in government bonds should the nation’s central bank pivot away from its ultra-loose monetary policy in future,” per Bloomberg. It should be noted that the recently firmer inflation and nearness to the end of BOJ Governor Haruhiko Kuroda’s term underpinned the talks of BOJ’s exit from the easy-money policies.

Elsewhere, the US 10-year and two-year Treasury bond yields print the first daily loss in four around 3.59% and 4.36% in that order while the US Dollar Index (DXY) retreats to 104.95 at the latest.

On Monday, the one-year inflation precursor from the New York Fed slumped the most on record but contrasted with the upbeat inflation expectations for the 5-year and 10-year reported by the St. Louis Federal Reserve (FRED) data. On the same line, the last week’s downbeat prints of the United States Producer Price Index (PPI) also hinted at softer US inflation but the University of Michigan’s (UoM) Consumer Sentiment Index, as well as the US ISM Services PMI and inflation expectations from the UoM Survey, suggested firmer prints of the US CPI.

Amid these plays, the S&P 500 Futures print mild losses whereas stocks in the Asia-Pacific region trade mixed even as Wall Street benchmarks posted notable gains.

Moving on, the mixed messages from the market, as well as from concerns surrounding Russia and China, could restrict USD/JPY moves ahead of the US inflation data. However, a firmer print of the US CPI, expected at 7.3% YoY versus 7.7% prior, won’t hesitate to recall the pair buyers amid recent hawkish Fed bets.

Also read: US Consumer Sentiment Preview: Dollar set to decline on falling inflation expectations

Technical analysis

USD/JPY’s latest run-up could be linked to the week-start break of a descending resistance line from November 23, now support around 136.10. Also keeping the USD/JPY buyers hopeful are the bullish MACD signals and the firmer RSI (14), not overbought.

However, a convergence of the 61.8% Fibonacci retracement level of the Yen pair’s run-up between August and October, as well as a seven-week-long downward-sloping trend line, challenges the USD/JPY bulls around 138.70.