USD/JPY reteats towards 143.00 as BOJ meddling talks ebb, yields dribble ahead of US data

• USD/JPY consolidates weekly gains around two-decade high, sidelined of late.
• Three-day holiday in Tokyo adds strength to yen’s importer demand.
• Risk catalysts, yields could entertain traders ahead of next week’s FOMC.

USD/JPY remains sidelined while consolidating the recent gains, the fifth weekly uptrend, as traders await key data/events amid a sluggish session and cautious mood heading into Friday’s European open.

“Good Japanese importer demand ahead of Tokyo 3-day weekend,” mentioned Reuters as one of the key catalysts behind the latest pullback in the USD/JPY prices.

The latest readings of the hawkish Fed bets from the CME’s FedWatch Tool suggest the market priced in the Fed’s 0.75% and 1.0% rate hikes during the next week’s Fed meeting with 77% and 23% chances. The firmer odds could be linked to the US Retail Sales which rose 0.3% in August versus 0.0% expected and July’s revised down -0.4%. Further, NY Fed Empire State Manufacturing Index improved to -1.5 in September compared to -31.3 in August and the market expectation of -13. Alternatively, Philadelphia Fed Manufacturing Index declined to -9.9 for the said month compared to 2.8 expected and 6.2 prior. Additionally, US Industrial Production slid to -0.2% in August versus a market expectation for an expansion of 0.1% and downwardly revised prior to 0.5%.

Even so, the US 10-year Treasury yields dropped 1.0 basis point (bp) to 3.455% by the press time, after rising 1.38% the previous day.

It should be noted that the comments from Japanese policymakers and the market’s cautious mood ahead of the next week’s Federal Open Market Committee (FOMC) also challenge the USD/JPY pair’s immediate moves. That said, “If sharp yen moves persist, we will take necessary action without ruling out any options,” said Japanese Finance Minister Shunichi Suzuki.

On Thursday, Japan’s ruling Liberal Democratic Party's (LDP) Policy Chief Koichi Hagiuda called for an additional stimulus package worth over JPY 30 trillion ($208.97 billion) to tackle the inflation and weak yen problem, Sankei newspaper reported.

Against this backdrop, S&P 500 Futures track Wall Street’s losses while the prices of oil and gold stabilize.

Moving on, preliminary readings of the Michigan Consumer Sentiment Index (CSI), expected 60 versus 58.2 prior, will be crucial for intraday directions. Also important to watch will be the chatters surrounding the BOJ, China and Europe. However, major attention will be on the next week’s Fed meeting.

Technical analysis

A five-week-old ascending support line, around 143.00 by the press time, restricts the short-term USD/JPY downside. The upside momentum, however, needs validation from the double tops near 145.00 to retake control.