USD/JPY defends 134.00 as USD retreat halts ahead of US PPI

• USD/JPY bounces off 134.00 as USD bulls fight back control.
• European indices return to the red, propping up the dollar demand.
• US PPI eagerly awaited, as a 75 bps June Fed rate hike seems likely.

USD/JPY is attempting a minor recovery in the European session, reversing a sell-off to the 134.00 area.

The US dollar is regaining its safe-haven appeal, as the European equities return to the red zone, erasing their opening gains. The German and Eurozone ZEW Economic Sentiment data failed to impress markets, keeping recessionary risks on the table.

In light of this, the greenback stalled its pullback from near 20-year highs vs. its major peers, helping USD/JPY find a floor ahead of the critical US Producer Price Index (PPI) release later in the NA session.

Hot US PPI print would add to the ongoing speculation that the Fed will deliver a 75 bps rate hike this week, overriding its pre-commitment of a 50 bps increase. This could be taken negatively by the global stock markets, triggering another risk aversion wave across the board.

The dollar remains in a win-win situation alongside the Treasury yields, which could fuel a fresh upturn in the spot. Additionally, the monetary policy divergence between the Fed and the Bank of Japan (BOJ) will also continue weighing on the Japanese currency, boding well for the pair.

Despite the verbal intervention efforts undertaken by the Japanese authorities, the BOJ’s measures to defend the yields target have failed to offer any support to the domestic currency in recent times.

The Fed is set to announce its interest rate decision on Wednesday while the BOJ will conclude its policy meeting on Friday.

USD/JPY: Technical levels to consider