USD/JPY traces sluggish yields at monthly low under 128.00

• USD/JPY struggles for clear directions after the two-day downtrend refreshed monthly low.
• Bearish bias takes clues from the recently softer USD, multi-month high Japan inflation data.
• Chatters over monetary policy divergence and China act as additional catalysts for fresh impetus.

USD/JPY dribbles between gains and losses around 127.80, mostly unchanged on a day, as European traders brace for Friday’s task. The yen pair’s latest inaction could be linked to the mixed concerns in the market and a lack of major catalysts. Even so, the quote eyes the second consecutive weekly loss amid a softer US dollar and fears of inflation, as well as growth.

That said, Japan’s National Consumer Price Index (CPI) for April rose to the highest levels since 2014, to 2.5% YoY versus 1.5% expected and 1.2% prior. On the same line were the numbers for National CPI ex Food, Energy that reversed the -0.7% prior and crossed the -0.9% forecast to 0.8% YoY.

On a different page, International Monetary Fund (IMF) Deputy Managing Director Kenji Okamura recently followed Managing Director Kristalina Georgieva’s signal for tighter monetary policy and urged Asian policymakers to be cautious. “IMF’s Okamura said, “Asian economies must be mindful of spillover risks as a decade of unconventional easing policies by major central banks is withdrawn faster than expected.”

It’s worth noting that the People’s Bank of China’s (PBOC) rate cut and softer covid numbers from the dragon nation, not to forget Shanghai’s gradual unlock, seems to underpin cautious optimism in Asia.

While the mildly positive sentiment favors stocks futures and the Asia-Pacific stocks, softer yields exert additional downside pressure on the US Dollar Index (DXY) and weigh on the USD/JPY prices.

Looking forward, a lack of major data/events keeps the USD/JPY pair at the mercy of risk catalysts. However, the monetary policy divergence between the Bank of Japan (BOJ) and the US Federal Reserve (Fed) could keep the buyers hopeful.

Technical analysis

A three-week-old ascending trend line defends USD/JPY buyers around 127.80. Also acting as a downside filter is the late April swing low near 126.95. Meanwhile, recovery moves need to cross a two-week-old descending trend line, close to 129.00, to retake control.