USD/JPY drops back below 131.00 ahead of US ISM, Fed Minutes

• The USD/JPY recovery falters once again near 131.40 amid the return of full markets.
• The Yen gains on the Nikkei report and upbeat Japan’s final Manufacturing PMI.
• Negative Japanese stocks and US yields weigh on the pair ahead of key US events.

USD/JPY is on the defensive below the 131.00 level, in what seems to be another volatile Asian trading session so far this Wednesday. The return of Japanese traders to their desks after a long New Year holiday combined with negative Japan indices and US Treasury yields add to the downside pressure on the pair.

The Japanese yen regains strength

The USD/JPY pair pauses its recovery mode and resumes the downside after domestic equity markets reopened after a long break on a negative note, triggering a fresh rush to the safety in the Japanese Yen. The local currency also capitalized on an upward revision to the country’s final Manufacturing PMI for December, which arrived at 48.9 vs. 48.8 previous.

Further, Japanese Prime Minister Fumio Kishida's comments on the price target also helped the Yen regain the bullish momentum. The Nikkei Asian Review reported on Wednesday that PM Kishida had said in an earlier interview that “the Japanese government must talk with the next Bank of Japan governor about whether to rework the joint accord setting a 2% inflation target.”

Meanwhile, the pair paid little attention to the Bank of Japan (BoJ) emergency bond-buying operation, conducted on Wednesday for the fourth straight session to defend the yield target.

US Dollar awaits ISM Manufacturing PMI and Fed Minutes

The retreat in the US Dollar amid a fresh move lower in the Treasury bond yields is also exerting downward pressure on the USD/JPY pair. The US Dollar recovery seems to have lost traction amid an upbeat market mood while traders gear up for fresh market action ahead of the US ISM Manufacturing PMI and Fed Minutes due later this Wednesday.

USD/JPY: Technical levels to consider