USD/JPY stays defensive above 132.00 on softer yields, BOJ, Fed’s Powell eyed

• USD/JPY picks up bids to pare two-day losses ahead of the key events.
• Yields dropped amid mixed sentiment, softer data, US dollar failed to cheer risk-aversion.
• Central banks’ aggression contrast downbeat US data to challenge traders.
• BOJ is widely expected to keep monetary policy unchanged, Powell should defend the latest action to restrict volatile moves.

USD/JPY pares recent losses around a fortnight low, snapping a two-day downtrend, as yen buyers take a pause ahead of the Bank of Japan’s (BOJ) monetary policy report on early Friday morning in Asia. Also challenging the pair’s pullback moves could be the market’s cautious mood ahead of a speech from Fed Chairman Jerome Powell. That said, the major currency pair bounces off a fortnight low to refresh an intraday high around 132.40 by the press time.

While portraying the pre-event anxiety, the USD/JPY pair ignores downbeat Treasury yields that drowned the quote during the last two days.

The US benchmark 10-year Treasury yields dropped during the last two consecutive days to 3.195% at the latest. Aggressive momentary policy actions from the Swiss National Bank (SNB) and Bank of England (BOE) seem to join the downbeat US data to weigh on the US bond coupons. In doing so, the Treasury yields fail to pay respect to the US Federal Reserve’s (Fed) 0.75% rate hike, the biggest move since 1994.

That said, the US Building Permits and Housing Starts eased in May to 1.695M and 1.549M respectively while the Initial Jobless Claims 4-week average inched up to 218.5K versus 215K expected during the period ended on June 10. Further, Philadelphia Fed Manufacturing Survey printed a negative figure of -3.3 for June, the first such contraction since May 2020.

It’s worth noting that the downbeat US data and yields weighed on the US Dollar Index (DXY) as it refreshed its weekly low with 103.41 before closing Thursday’s trading session around 103.83 during the second negative daily performance.

However, the Wall Street benchmarks failed to cheer the downbeat US dollar, neither they could benefit from the softer yields as fears of faster monetary policy tightening weigh on investor sentiment, which in turn allowed USD/JPY to remain depressed.

Looking forward, USD/JPY traders will pay attention to the BOJ monetary policy meeting even as the Japanese policymakers have clearly shown their intent to keep the easy money flowing until witnessing the 2.0% inflation on a successive basis. The reason making today’s BOJ interesting are the surprises from the Fed and the SNB, as well as the yen’s heavy weakness.

Also read: BOJ Preview: Slim chance for a tweak in YCC policy

Other than the BOJ, the US Industrial Production for May, expected at 0.4% versus 1.1% prior, will join the Fed’s bi-annual Monetary Policy Report and Powell’s speech to offer a busy end to the crucial week. Fed’s Powell need to defend the latest moves to recall the USD bulls.

Technical analysis

A sustained downside break of a fortnight-old ascending trend line directs USD/JPY towards the tops marked during late April and early May, surrounding 131.25-35. Alternatively, multiple supports around 133.50 guards immediate upside.