- USD/JPY meets with a fresh supply on Thursday amid the emergence of fresh USD selling.
- Sliding US bond yields turn out to be a key factor keeping the USD bulls on the defensive.
- The BoJ’s policy tweak continues to underpin the JPY and contributes to the offered tone.
- The upbeat market mood seems to cap the safe-haven JPY and lends support to the pair.
The USD/JPY pair comes under some renewed selling pressure on Thursday and reverses a major part of the previous day’s recovery gains. The pair, however, recover a few pips from the daily low and trades just below the 132.00 mark during the early North American session, still down around 0.40% for the day.
A modest downtick in the US Treasury bond yields exerts some downward pressure on the US Dollar, which, in turn, is seen as a key factor dragging the USD/JPY pair lower. Despite the Fed’s hawkish commentary last week, investors expect the US central bank to pivot to something more neutral. This drags the yield on the 10-year US government bond away from the monthly peak touched on Wednesday and undermines the greenback.
The Japanese Yen, on the other hand, continues to draw support from the Bank of Japan’s policy tweak, widening the range for fluctuations in the 10-year government bond yield. The Japanese central bank’s surprise move to review its yield curve control policy is seen as a precursor to the end of the ultra-accommodative monetary policy. The resultant US-Japan rate differential further benefits the JPY and weighs on the USD/JPY pair.
That said, the recent recovery in the global risk sentiment – as depicted by a generally positive tone around the equity markets – keeps a lid on any further gains for the safe-haven JPY. This, in turn, lends some support to the USD/JPY pair and helps limit the downside, at least for the time being. Traders also refrain from placing aggressive bets ahead of the final US Q3 GDP print, due later during the early North American session.
The focus, however, remains on the US Core PCE Price Index (the Fed’s preferred inflation gauge), scheduled for release on Friday. This will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the USD/JPY pair. Nevertheless, the fundamental backdrop favours bearish traders and suggests that the path of least resistance for spot prices is to the downside.
Technical levels to watch