USD/JPY retreats from fortnight top to 133.00 on BoJ talks, Fed’s favorite inflation eyed

• USD/JPY trims intraday gains at the highest levels in two week.
• IMF’s Salgado signals more flexibility in BoJ YCC policy, Japan FinMin Suzuki advocates BoJ independence.
• Mixed Japan data, sluggish yields and cautious optimism keep Yen pair buyers hopeful.
• Quarter-end JPY flows, US Core PCE Price Index can entertain USD/JPY traders.

USD/JPY drops to 132.90 amid early Friday, after refreshing a two-week high, as market sentiment turns dicey ahead of the key US inflation catalysts. Adding strength to the pullback moves could be the chatters surrounding the Bank of Japan (BoJ) and mixed Japan data, not to forget the sluggish US Treasury bond yields.

Starting with the data, Tokyo Consumer Price Index (CPI) rose to 3.3% in March versus 2.7% expected but eased from 3.4% prior while the Tokyo CPI ex Food, Energy jumped to 3.4% compared to 3.2% previous readings and 3.3% market consensus. Further, Japan’s Industrial Production growth rallied to 4.5% MoM in February compared to 2.7% estimations and -5.3% prior while Retail Trade also improved during the stated month to 6.6% from 5.0% prior and 5.8% analysts’ forecasts. On the contrary, a surprise jump in Japan’s Unemployment rate, from 2.4% to 2.6% in February, can be cited as resulting in the Japanese Yen’s (JPY) latest weakness.

Following that, Japan's Finance Minister Shunichi Suzuki said that he expects the Bank of Japan (BoJ) and Ueda to enforce monetary policy strongly. The same promotes the Japanese central bank’s autonomy and likely push for exiting the easy money policies, especially after the latest wage hike.

It should, however, the noted that International Monetary Fund (IMF) Japan Mission Chief Ranil Salgado saw the prospect and the potential of more flexibility at the long end of the curve under the Bank of Japan’s (BOJ) YCC policy.”

On the other hand, Federal Reserve Chairman Jerome Powell joined three other Fed Officials to back further rate hikes on Thursday, citing the need to tame the inflation woes. However, mixed US data raise doubts about the Fed policymakers’ hawkish rhetoric and rather concentrated on their rejection of banking crisis woes to weigh on the US Dollar, as well the Fed bets.  That said, the CME’s FedWatch Tool suggests a nearly 50% chance of a 0.25% rate hike in the May Fed meeting, versus 60% the previous day.

It’s worth mentioning that the central bankers from the Federal Reserve (Fed), the European Central Bank (ECB), the Bank of England (BoE) and the Swiss National Bank (SNB) have recently pushed back the fears of the banking crisis and allow the markets to remain optimistic.

Amid these plays, the S&P 500 Futures refresh a three-week high near 4,095, rising for the third consecutive day, as it traces Wall Street’s upbeat sentiment. That said, the US 10-year Treasury bond yields rose two basis points (bps) to 3.57% whereas the two-year counterpart grinds higher to 4.13% during a five-day uptrend.

Moving on, the Federal Reserve’s (Fed) preferred inflation gauge, namely the US Core Personal Consumption Expenditure (PCE) Price Index for February, will be crucial for clear directions as markets anticipate softer inflation to weigh on hawkish Fed bets.

Also read: US February PCE Inflation Preview: Bad news for the Dollar, good news for the Fed?

Technical analysis

A daily closing beyond the 50-DMA hurdle surrounding 133.00 becomes necessary for the USD/JPY bulls to keep the reins.