USD/JPY slides towards 136.00 on downbeat BOJ Minutes, softer yields ahead of US data

• USD/JPY takes offers to renew intraday low, reverses the week-start rebound.
• BOJ Minutes cited the need to watch impact of financial, forex market moves on economy, prices.
• Yields remain pressured as recession woes stay on the table ahead of Wednesday’s FOMC.
• Pre-Fed anxiety, fears of economic slowdown exert downside pressure ahead of US Consumer Confidence for July.

USD/JPY renews its intraday low around 136.30 during the initial hour of Tokyo open on Tuesday. In doing so, the yen pair reverses the previous day’s corrective pullback amid downbeat US Treasury yields and the mixed comments from the Bank of Japan’s (BOJ) Monetary Policy Meeting Minutes.

“Bank of Japan policymakers agreed on the need to maintain ultra-low interest rates to support a fragile economy and ensure rising inflation was accompanied by higher wages, minutes of their June rate-setting meeting showed on Tuesday,” reported Reuters. The Minute statement also mentioned that members shared the view that BOJ must support the economy, which is under pressure from rising commodity prices.

Elsewhere, fears of recession returned to the table, despite the US policymakers’ attempts to talk down the pessimism. Recently, two US Treasury officials, namely Ben Harris, Treasury Assistant Secretary for Economic Policy and Neil Mehrotra, Deputy Assistant Secretary for Macroeconomics raised hopes for a firmer US Gross Domestic Product (GDP). The officials wrote, per Reuters, that gross domestic income (GDI), which measures aggregate income -- wages, business profits, rental and interest income -- continued to rise in the first quarter at a 1.8% annual pace, while GDP fell.

Earlier in the week, US Treasury Secretary Janet Yellen talked down fears of the US recession while saying, “A second quarter GDP contraction would not signal recession because of underlying job market strength, demand and other indicators of economic health.”

It’s worth noting that Chicago Fed National Activity Index reprinted -0.19 in June, versus a -0.03 forecast while Dallas Fed Manufacturing Index for July slumped to the lowest levels since mid-2020 to -22.6 versus -12.5 expected and -17.7 prior.

Additionally, Bloomberg’s analysis suggests the Chinese recession concerns weighing on the economic slowdown at the major economies also drown the USD/JPY prices due to the closed trade links between Australia and China. “China’s economic slowdown is spilling over to major exporting nations in Europe and East Asia through falling demand for manufactured goods, causing Germany and South Korea to post rare deficits with the world’s second-largest economy,” said Bloomberg.

Amid these plays, Wall Street managed to close mixed, with Nasdaq posting mild losses versus the softer gains of the DJI30 and S&P 500. However, the US 10-year Treasury yields snapped a three-day downtrend and rose nearly 1.75% while regaining the 2.81% mark of late. It should be noted that the S&P 500 Futures drop 0.37% intraday by the press time.

Looking forward, US CB Consumer Confidence for July, prior 98.7, appears to be the key for the pair traders to watch for the intraday directions. Following that, Wednesday’s Federal Open Market Committee (FOMC) will be crucial as traders brace for a 0.75% rate hike from the Fed.

Technical analysis

Failure to cross the 21-DMA hurdle, around 136.80 by the press time, during the previous day’s rebound directs USD/JPY prices towards an upward sloping support line from early March, at 135.00 by the press time.