USD/JPY retreats to 146.00 despite firmer yields amid anxiety about BoJ, Fed Chair Powell’s speech

• USD/JPY fades the previous day’s rebound from fortnight low.
• Japan inflation came in softer but the details are way past BoJ target, keeping Yen buyers hopeful.
• US Dollar traces firmer Treasury bond yields to justify upbeat data and hawkish Fed talks.
• Fed Chair Powell’s speech will direct Yen pair ahead of BoJ Governor Ueda’s statements.

USD/JPY struggles to defend the mid-week recovery from the lowest level in a fortnight, easing to 145.90 amid early Friday morning in Europe. In doing so, the Yen pair portrays the market’s cautious mood ahead of the speeches from the Bank of Japan (BoJ) and the Federal Reserve (Fed) leaders at the annual Jackson Hole Symposium.

Apart from that, a softer print of the Tokyo Consumer Price Index (CPI) for August contrasts with the upbeat details than the BoJ’s target to prod the JPY buyers. Also, the chatters that the BoJ’s tweak to the Yield Curve Control (YCC) policy will push for a bigger budget and propel the inflation exert additional downside pressure on the Yen pair.

Previously, the upbeat details of the US Durable Goods Orders for July and firmer mid-tier activity data, as well as employment clues, allowed the Fed policymakers to remain hawkish and sour the sentiment. Among them, former St. Louis Federal Reserve President James Bullard was the first to underpin the US Dollar’s strength with his hawkish remarks. “The reacceleration could put upward pressure on inflation and thus makes it impossible for the Fed to start cutting rates anytime soon,” said Fed’s Bullard in an interview with Bloomberg. While Bullard was hawkish, Federal Reserve Bank of Philadelphia President Patrick Harker teased an end of rate hike trajectory whereas Boston Federal Reserve President Susan Collins defended a “higher for longer” bias for rates.

On the same line was the recently fading optimism about the US-China ties as the Chinese Commerce Ministry said in a statement on Thursday, “China will state its stance on economic and trade matters of concern,” while adding that they will push financial institutions to expand credit to businesses. China’s Commerce Ministry also called on the US to cancel potential arms sales to Taiwan, which in turn flagged fears of geopolitical tension when US Commerce Secretary Gina Raimondo visits Beijing next week.

Against this backdrop, S&P 500 Futures remain depressed around 4,385 after falling the most since December 2022 the previous day, while the US 10-year Treasury bond yields reverse the previous pullback from the highest level since 2007, up two basis points (bps) to 4.25% by the press time. Further, the US Dollar Index (DXY) rises to a fresh high in 11 weeks and put a floor under the USD/JPY price.

Looking forward, Fed Chair Powell’s speech will be crucial for the USD/JPY traders as BoJ Governor Kazuo Ueda will speak on Saturday. That said, a divergence between the policymakers’ speeches will be crucial to observe.

Technical analysis

A one-month-old bullish flag formation keeps the USD/JPY pair buyers hopeful unless it falls beneath the flag’s bottom line of 144.80. The upside moves, however, need validation from 146.30 to observe the theoretical target surrounding 154.00.