Breaking: USD/JPY slides towards 136.00 as BOJ vs. Fed play gains momentum ahead of US PCE Inflation

• USD/JPY takes offers to refresh 14-week low during four-day downtrend.
• BOJ’s Noguchi teases pre-emptive withdrawal of stimulus to propel JPY of late.
• Fed’s Powell, US Treasury Secretary Yellen favored hopes of smaller rate hikes.

USD/JPY stands on slippery grounds, extending the previous south-run towards the lowest levels since late August after Bank of Japan (BOJ) policymaker signaled withdrawal of stimulus during early Thursday. That said, the bears attack 136.00 level by the press time during the four-day downtrend.

Bank of Japan (BoJ) board member Asahi Noguchi recently signaled the Japanese central bank’s readiness to withdraw stimulus if inflation numbers appear too strong. “BOJ could withdraw stimulus pre-emptively if underlying inflation perks up higher than expected,” said the policymaker.

On the other hand, the latest comments from the Federal Reserve (Fed) officials, including Chairman Jerome Powell, as well as from US Treasury Secretary Janet Yellen, underpin the hopes of the US central bank’s easy rate hikes. On the same line was the easing in the virus-led activity controls in China as the dragon nation reports the third day of declining daily infections after refreshing the record top.

It’s worth noting that the recent increase in the US inflation expectations, as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, should have also probed the USD/JPY bears, but could not. Also a likely negative for the current downtrend could be the comments from US National Security Adviser Jake Sullivan suggesting fresh challenges for the Sino-American optimists. The diplomat said, “The US sees China as a growing strategic threat.” Additionally, the cautious mood ahead of the Fed’s preferred inflation gauge, namely the US Core Personal Consumption Expenditure (PCE) Price Index for October, expected 5.0% YoY versus 5.1% prior, might have also probed the bears if the BOJ versus the Fed play would have been silent like previously.

Other than the US inflation precursors, the US ISM Manufacturing PMI for November, expected 49.8 versus 50.2 prior, as well as a speech from BOJ Governor, Haruhiko Kuroda also become crucial to be watched by the USD/JPY traders.

Also read: US October PCE inflation & ISM Manufacturing PMI Preview: Seen through Fed’s eyes

Technical analysis

A clear downside break of an ascending trend line from late May, around 137.30 by the press time, directs USD/JPY bears towards the 200-DMA support of 134.41.