USD/JPY traces firmer yields to approach 145.00, Japan stimulus, US GDP in focus

• USD/JPY picks up bids to refresh intraday high, reversing the previous day’s losses.
• Recession fears, hawkish central banks renew upside momentum of Treasury bond yields.
• Japan considers aid package to ease utility bill burden amid rising energy cost.
• US GDP could entertain buyers but BOJ’s intervention tests upside momentum.

USD/JPY remains on the front foot around 144.65, refreshing intraday high while paring the previous day’s losses ahead of Thursday’s European session. In doing so, the yen pair tracks the firmer Treasury bond yields while also cheering the hopes of stimulus at home, as well as respecting the US dollar’s broad recovery.

That said, the US 10-year Treasury bond yields pare the biggest daily loss in six months while adding 11 basis points (bps) to 3.82% by the press time. It’s worth noting that the benchmark bond coupons reversed from the highest levels since 2010 the previous day.

The US Dollar Index (DXY) also benefits from the firmer yields, as well as the market’s risk for risk-safety, while printing 0.70% intraday gains around 113.50. It should be observed that the greenback’s gauge versus the six major currencies reversed from the 20-year high the previous day after the Bank of England (BOE) announced a surprise bond-buying program.

Among the major risk-negative headlines are fears of global stagflation and recession in the Eurozone, recently backed by World Bank President David Malpass. Further, doubts about the Bank of England’s (BOE) capacity to restore the British economic performance while keeping the recently criticized fiscal plan weigh on the sentiment. Additionally, the hawkish commentary from the global central bankers, including those from Europe and the US, join the discomfort from China’s efforts to avoid recession, which seem to spoil the mood and favor the DXY.

At home, Japan readies more steps to ease the pain from the rising electricity bills, a government spokesperson signaled on Thursday. The diplomat underscored, per Reuters, underscoring the pressure it faces in addressing the burden on households of higher prices for imports from a weak yen. The news adds that Electricity bills have risen about 20% in the past year for households and by about 30% for businesses, Chief Cabinet Secretary Hirokazu Matsuno told a briefing, adding that such increases were becoming a "heavy burden" for consumers.

Amid these plays, the stock futures remain sluggish and the Asia-Pacific equities dwindle.

Moving on, updates surrounding the Bank of Japan’s (BOJ) efforts to defend the yen, as well as the Japanese government’s stimulus, will be important for the USD/JPY pair. Also, the final readings of the US Q2 Gross Domestic Product (GDP), expected to confirm -0.6% annualized figure, will be important to watch.

Technical analysis

Unless providing a daily closing beyond a three-week-old resistance line, around 144.90 by the press time, USD/JPY buyers remain cautious. The downside move, however, needs validation from the 21-DMA support surrounding 143.15.