USD/JPY portrays pre-Fed anxiety, BoJ’s struggle to defend JGB yields around 130.00

• USD/JPY picks up bids to pare recent losses but stays indecisive on a daily basis.
• Downbeat US data, yields joined BoJ loans, fears of government intervention to favor Yen pair sellers.
• 10-year Japan Government Bond (JGB) yields keeps pushing BoJ to defend YCC policy.
• Fed Chair Powell’s press conference will be crucial as dovish hike already priced in.

USD/JPY consolidates recent losses around 130.20, posting minor gains as market players appear cautious ahead of the key Federal Reserve (Fed) verdict. Also challenging the sentiment, as well as the Yen pair, could be the latest moves of the Japan Government Bond (JGB) yields.

The benchmark 10-year JGB yields keeps poking the Bank of Japan’s (BoJ) 0.50% limit during the seven-day uptrend. The same has recently pushed the Japanese central bank to intervene multiple times. On the same line were fears of government meddling which were raised by Hirohide Yamaguchi, one of the top candidates to become the next BoJ Governor.

On the other hand, the US 10-year Treasury bond yields snapped a three-day uptrend while revisiting 3.51% while the two-year counterpart also dropped to 4.20%, near the same levels by the press time.

It should be noted that downbeat US Treasury bond yields joined and firmer equity earnings and softer US data to renew the US Dollar weakness and strengthened the USD/JPY pullback.

That said, the US Dollar Index (DXY) printed the first daily loss in four on Tuesday, staying defensive near 102.00 by the press time.

Talking about the data, US Employment Cost Index (ECI) for the fourth quarter (Q4) eased to 1.0% versus 1.1% market forecasts and 1.2% prior readings. Further, the Conference Board (CB) Consumer Confidence eased to 107.10 in January versus 108.3 prior. It should be noted that no major attention could be given to the US Chicago Purchasing Managers’ Index (PMI) for January which rose to 44.3 versus 41 expected and 44.9 previous readings.

Elsewhere, earnings data from the industry majors like General Motors, Exxon and McDonalds pushed back recession woes and propelled the Wall Street benchmarks, which in turn weigh on the US Treasury bond yields and the DXY. That said, the Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq all three reported over 1.0% daily gains the previous day.

Looking ahead, multiple PMIs from China, Eurozone and the US may entertain the USD/JPY traders, as well as the JGB moves. However, major attention will be given to the Federal Reserve (Fed) meeting as the 0.25% rate hike is already priced-in while the policy pivot talks challenge the US Dollar bulls.

Also read: Federal Reserve Preview: The Good, the Bad and the Ugly, why the US Dollar would rise

Technical analysis

A two-week-old symmetrical triangle restricts USD/JPY moves between 129.60 and 130.50.