USD/JPY tracks softer yields to retreat from 23-year high ahead of US consumer-centric data

• USD/JPY consolidates the biggest daily gains in a month around the highest levels since September 1998.
• Yield ease amid mixed US data, Fedspeak as traders await fresh clues.
• G20, US Retail Sales and Michigan CSI are the key catalysts for the day.
• Fed policymakers could also entertain traders ahead of blackout period.

USD/JPY takes offers to refresh intraday low around 138.80 while extending the late Thursday’s pullback from a multi-year high to Friday’s initial Asian session. The yen pair’s latest weakness could be linked to the market’s inaction, as well as softer yields, not to forget the cautious mood ahead of the key US data.

That said, the US 10-year Treasury yields ended Thursday around 2.95%, up 0.95% intraday, whereas the 2-year bond coupon dropped 0.75% to 3.12% at the latest. With this, the difference between the near-term and the longer-term bond coupons declined to 17 basis points (bps) versus 23 bps inversion on Tuesday. Given the easing difference between the 2-year and the 10-year US Treasury yields, the market’s fears of recession appear abating of late, which in turn allowed the US dollar bulls to take a breather. It’s worth noting that the US 10-year Treasury yields flash 2.945% level while the 2-year bond coupon seesaws around 3.12% by the press time.

Elsewhere, Fed policymaker’s efforts to tame 100 bps rate hike talks and mixed US data also helped the USD/JPY sellers to step in.

St. Louis Federal Reserve President James Bullard and Federal Reserve Governor Christopher Waller were among the key Fed speakers who tried to talk down the odds of higher rates. That said, Fed’s Bullard said, "So far, we've framed this mostly as 50 versus 75 at this meeting." On the same line, Fed’s Waller mentioned that markets may have gotten ahead of themselves by pricing a 100 basis points rate hike in July, as reported by Reuters. It should be noted that the Fed policymakers head to a blackout period from this weekend ahead of late July Federal Open Market Committee (FOMC).

Talking about data, the US Bureau of Labor Statistics mentioned that the Producer Price Index (PPI) for final demand in the US climbed to 11.3% on a yearly basis in June from 10.9% in May. This print surpassed the market expectation of 10.7%. Additionally, there were 244,000 Initial Jobless Claims in the week ending July 9 versus the previous week's print of 235,000 and market expectation of 235,000. The Weekly Jobless Claims were the highest in five months.

Amid these plays, S&P 500 Futures rise 0.13% intraday to 3,800 at the latest, which in turn portrays the market’s cautious optimism.

It should be noted that the meeting of the Group of 20 key nations (G20) in Indonesia starts with US Treasury Secretary Janet Yellen’s criticism of Russia over its invasion of Ukraine. However, China’s readiness to ease tension with Australia seems to help the sentiment.

That said, USD/JPY traders should pay attention to the risk catalysts for immediate directions ahead of US Retail Sales, expected 0.8% MoM in June from -0.3% marked in May, which will precede preliminary readings of the Michigan Consumer Sentiment Index (CSI) for July, expected 49.9 versus 50.0 prior, not to forget the Fedspeak.

Technical analysis

While overbought RSI (14) challenges USD/JPY buyers targeting the 140.00 threshold, pullback remains elusive until the quote stays above the previous resistance line from June 21, close to 137.55 by the press time.