USD/JPY snaps two-day uptrend despite upbeat yields, hawkish Fed talks

• USD/JPY takes offers to refresh intraday low, prints the first daily loss in three.
• US Treasury bond yields grind near monthly high after Fed policymakers defend rate hikes.
• BoJ governing board nominations appear hawkish enough to favor JPY bulls.
• Unimpressive US inflation highlights Retail Sales, NY Empire State Manufacturing for clear directions.

USD/JPY returns to the bear’s radar on early Wednesday, following a two-day winning streak, as market players reassess the hawkish Fed verdict vis-à-vis expectations of the Bank of Japan’s (BoJ) next move. That said, the Yen pair renews its intraday low near 132.70 while printing the first daily loss in three, down 0.20% on a day by the press time.

The Japanese government’s selection of a hawkish leader for the Bank of Japan (BoJ) board seemed to have challenged USD/JPY bears of late, despite the run-up in the US Treasury bond yields and the US Dollar’s rebound following the US inflation data.

On Tuesday, the Japanese government officially nominated Kazuo Ueda as the BoJ Governor. It should be noted that Bloomberg ran out a story suggesting challenges to the BoJ’s easy money policy due to Ueda’s hawkish bias.

Elsewhere, most of the Federal Reserve (Fed) policymakers were in favor of further rate hikes even as the United States inflation failed to match “positive surprise” hopes. The same propelled the US Treasury bond yields and US Dollar.

US Consumer Price Index (CPI) rose past market expectations to 6.4% YoY but posted the slowest increase since 2021 while easing below 6.5% prior. More importantly, CPI ex Food & Energy, better known as the Core CPI, grew 5.6% YoY compared to 5.5% market forecasts and the 5.7% previous readings.

Following the data, Dallas Fed President Lorie Logan stated that they must remain prepared to continue rate increases for a longer period than previously anticipated. On the same line was New York Fed President John Williams who noted that the work to control too high inflation is not yet done. Additionally, Philadelphia Fed President Patrick Harker signaled that they are not done (with lifting rates), but they are likely close.

Amid these plays, US 10-year Treasury bond yields seesaw around 3.75%, after rising three basis points (bps) to refresh a six-week high whereas the two-year counterpart jumped to the highest level since early November 2022 by poking 4.62%, around 4.61% at the latest.

That said, S&P 500 Futures trace Wall Street’s downbeat closing to highlight the mildly offbeat mood and weigh on the USD/JPY prices, mainly due to the Japanese Yen’s (JPY) traditional risk-safety allure.

Moving on, a lack of major data/events from Japan puts the USD/JPY pair at the mercy of the US catalysts for clear directions. Among them, Retail Sales and Industrial Production details for January, as well as NY Empire State Manufacturing Index for February, should be watched closely for clear directions.

Technical analysis

Unless providing a daily close beyond the 200-day Exponential Moving Average (EMA), the USD/JPY pair remains on the bear’s radar.