USD/JPY jumps back towards 135.00 on BOJ chatters, sluggish yields

• USD/JPY reverses the previous day’s pullback from the highest levels since 1998.
• Market sentiment remains mixed as yields fail to extend post-Fed downside while stock futures and Asian equities remain firmer.
• Japan’s Chief Cabinet Secretary hopes BOJ coordinates with government policies.
• Japan’s Merchandise Trade Deficit widened in May, BOJ’s bond-buying hints eyed.

USD/JPY picks up bids to refresh intraday high around 134.60 as yields fade the Fed-inspired weakness during early Thursday. The yen’s latest gains could also be linked to the comments from Japanese Chief Cabinet Secretary Hirokazu Matsuno.

The US 10-year Treasury yields rebound from an intraday low of 3.288% to 3.364% by the press time. Even so, the benchmark bond coupons remain negative for the second consecutive day, down 3.1 basis points (bps) at the latest.

On the other hand, the Japanese policymaker said, “(He) hopes that the Bank of Japan (BOJ) guides policy appropriately in close coordination with government,” when asked about BOJ’s policy meeting this week.

It’s worth noting that an increase in Japan’s Merchandise Trade Balance Total for May, to ¥-2,384.7B versus ¥-2,022.6B expected and ¥-842.8B prior also contributed to USD/JPY strength.

The yen pair dropped the most in over a month the previous day after the US Federal Reserve (Fed) announced the biggest interest rate hike since 1994 to battle inflation fears. The US central bank also revised inflation forecasts for this year and the next while cutting down the inflation expectations. Further, the policymakers also signaled either a 50 bp or 75 bp rate hike in the next meeting. However, the Fed’s rejection of the odds of a 100 bp rate increase and Chairman Jerome Powell’s measured comments seem to have drowned the Treasury yields and the US dollar afterward.

Also helping the USD/JPY sellers were downbeat US data, US Retail Sales marked a contraction of 0.3% MoM versus an anticipated growth of 0.2% and downwardly revised 0.7% in previous readings. Also, the NY Empire State Manufacturing Index dropped to -1.2 compared to 3.0 market consensus and -11.6 prior.

Moving on, risk catalysts could entertain USD/JPY traders ahead of Friday’s BOJ. Given the hawkish mood at major central banks, the BOJ’s bond-buying and rate clues will be crucial to watch.

Technical analysis

Unless declining below May’s high of 131.34, USD/JPY remains on the front foot. That said, the latest high of 135.59 lures intraday buyers by the press time.