USD/JPY drops to 132.00 neighbourhood, erases weekly gains amid broad-based USD weakness

• USD/JPY remains under heavy selling pressure for the second successive day on Thursday.
• The softer US PPI reaffirms bets for an imminent Fed rate hike pause and weighs on the USD.
• Looming recession risks benefit the safe-haven JPY and also contribute to the offered tone.

The USD/JPY pair comes under heavy selling pressure during the early North American session and drops to a three-day low, around the 132.00 round-figure mark in the last hour.

The US Dollar (USD) weakens across the board in reaction to the US Producer Price Index (PPI) and turns out to be a key factor dragging the USD/JPY pair lower for the second successive day. Against the backdrop of the softer US CPI report released on Wednesday, the US PPI print suggests that disinflation is progressing smoothly and may even accelerate. This, in turn, reaffirms expectations that the Federal Reserve (Fed) will be done with its monetary tightening after hiking one last time next month and weighs on the buck

Furthermore, the March FOMC meeting minutes showed that several policymakers considered pausing interest rate increases after the failure of two regional banks. Meanwhile, the prospects for an imminent pause in the Fed's rate-hiking cycle lead to a further decline in the US Treasury bond yields, resulting in the further narrowing of the US-Japan rate differential. This, along with looming recession risks, benefits the safe-haven Japanese Yen (JPY) and also contributes to the heavily offered tone surrounding the USD/JPY pair.

That said, the Bank of Japan's (BoJ) dovish near-term outlook might keep a lid on any meaningful gains for the JPY and hold back traders from placing aggressive bearish bets around the USD/JPY pair, at least for the time being. Nevertheless, spot prices now seem to have surrendered a major part of the weekly gains and remain at the mercy of the USD price dynamics. Apart from this, the US bond yields and the broader risk sentiment will be looked upon for short-term trading opportunities ahead of the US monthly Retail Sales data on Friday.

Technical levels to watch