USD/JPY drops back towards 130.00 to snap two-day rebound amid softer yields, mixed Japan PMI

• USD/JPY takes offers to refresh intraday low, prints the first daily loss in three.
• Japan’s Jibun Bank Manufacturing PMI stays intact, Services PMI improved in January.
• Chatters over easing Covid-led restrictions on Japan, mixed sentiment exert downside pressure on Yen pair.
• US PMIs, risk catalysts are the key ahead of US Q4 GDP.

USD/JPY slides towards 130.00 during the initial hour of Tokyo opening on Tuesday. In doing so, the Yen pair justifies slightly positive activity data from Japan, as well as optimism surrounding the Covid conditions in the Asian major, not to forget the recent weakness in the US Treasury bond yields.

That said, Japan’s Jibun Bank Manufacturing PMI for Japan remained unchanged at 48.9 while matching the market forecasts. It’s worth noting, however, that the Services counterpart improved to 52.4 versus 51.4 expected and 51.1 prior. On the other hand, softer prints of the US Conference Board’s Leading Index for December, to -1.0% versus -0.7% expected and -1. 1% prior, added weakness to the US Dollar.

Elsewhere, hawkish concerns surrounding the Bank of Japan’s (BOJ) next move and the cautious optimism in the market, mainly due to the easing COVID-19 woes in China, seemed to have exerted downside pressure on the USD/JPY prices. It should be observed that Japanese media Mainichi quotes Japan Prime Minister Fumio Kishida while stating the national leader’s plans to downgrade the legal status of COVID-19 this spring to a Class 5 disease.

On a different page, an absence of Chinese players due to the Lunar New Year Holidays and receding fears of the strong recession in 2023 also seemed to have improved the market’s mood and favored the USD/JPY bears. Furthermore, the hawkish comments from the European Central Bank (ECB) officials also weighed on the US Dollar and favored the Yen pair sellers.

Amid these plays, the US 10-year and two-year Treasury bond yields snap three-day recovery moves with mild losses near 3.51% and 4.21% by the press time. That said, the S&P 500 Futures also resist following Wall Street’s gains and favor the USD/JPY bears.

Moving on, the first readings of January’s S&P Global PMIs for the US will offer intraday directions while the US four-quarter (Q4) Gross Domestic Product (GDP) will be crucial for the week for clear directions. Given the softer forecasts surrounding the US data and the recession talks, the downbeat actual outcome could allow the USD/JPY bears to keep the reins.

Technical analysis

USD/JPY portrays another failure to cross the 21-DMA hurdle, around 131.00 by the press time, which in turn joined bearish MACD signals to keep sellers hopeful.