USD/JPY bears ignore sluggish yields to eye 139.00 as BoJ vs. Fed divergence looses charm

• USD/JPY bounces off intraday low as bears take a breather amid two-week downtrend.
• US Treasury yields halt latest downside as debt-ceiling deal pushed for more bond issuance.
• BoJ officials keep defending easy-money policies but Japan’s upbeat inflation clues lure policy hawks.
• Receding hawkish Fed bets, absence of major US data and Fed blackout also favor Yen pair sellers.

USD/JPY prints mild losses around 139.35 despite bouncing off an intraday low early Wednesday morning. In doing so, the Yen pair struggles to justify the market’s cautious optimism due to the recent hawkish bias about the Bank of Japan (BoJ), as well as a broad US Dollar weakness.

BoJ Governor Kazuo Ueda signaled on Tuesday that the Japanese central bank will continue QQE until the achievement of the inflation target. Even so, the Yen pair sellers remain hopeful as higher inflation numbers from Japan join easing hawkish Fed bets and mostly downbeat US data.

Earlier in the day, Japan’s Foreign Reserve eased to $1,254.5 billion in May versus $1,265.4 billion.

That said, US Dollar Index (DXY) reverses the previous day’s corrective bounce while taking offers around 104.00, down 0.10% on a day by the press time. In doing so, the greenback’s gauge versus six major currencies suffers from downbeat market bets on the Fed’s next move. That said, the interest rate futures show a nearly 15% probability of a June rate hike. The reason could be linked to downbeat United States activity data released on Monday, as well as the previously dovish comments from the Federal Reserve (Fed) Officials ahead of the pre-Fed blackout.

It’s worth noting that the 10-year coupons remain sluggish at around 3.67%, despite a recent corrective bounce, whereas the two-year counterpart rose a bit to 4.50% at the latest. While portraying the mood, S&P500 Futures print mild gains by tracking Wall Street’s performance.

Looking forward, preliminary readings of April month sentiment data from Japan can entertain the USD/JPY pair traders ahead of Thursday’s Japan first quarter (Q1) Gross Domestic Product (GDP).

Technical analysis

A downside break of a one-month-old ascending support line, now immediate resistance near 139.70, directs USD/JPY bears toward the 40-35 support confluence including the previous weekly low and the 21-DMA.