USD/JPY trades mixed above 130.00 as fears of Japan government meddling join cautious optimism

• USD/JPY picks up bids to pare intraday losses, up for the third week in a row.
• Yields remain pressured, stock futures grind higher amid growth optimism, Covid-linked news.
• BoJ Chief Contestant warn of government meddling to defend JPY.
• Second-tier US data may entertain traders but FOMC is the key.

USD/JPY trims daily loss around 130.30 during early Tuesday morning in Europe as mixed sentiment in the market joins a pause in the US Treasury bond yields. Adding to the Yen pair traders’ confusion are the fresh fears of government meddling to defend the Japanese currency.

While firmer Japan data recently fuelled fears of the Bank of Japan’s (BOJ) exit from ultra-easy monetary policy, backed by a suggestion from the key policymakers, fears of government’s defense of Japanese Yen (JPY) probe the pair traders. “Hirohide Yamaguchi, among the top candidates to become the next Bank of Japan (BOJ) governor, warned about the danger of signing a joint policy document with the government when he was deputy governor in 2012, minutes of that meeting showed on Tuesday,” per Reuters.

Elsewhere, the International Monetary Fund (IMF) recently raised its global growth estimates while also saying that the emerging markets' growth slowdown bottomed out in 2022. The global lender also stated that estimates come with the backdrop of a slight increase in the 2023 global growth outlook helped by "surprisingly resilient" demand in the United States and Europe, an easing of energy costs and the reopening of China's economy after Beijing abandoned its strict COVID-19 restrictions. It’s worth mentioning that the IMF’s fears over inflation seem to tame the optimism afterward.

On the same line, receding fears of the COVID-19, after the US White House statement suggesting removal of virus-led activity restrictions, also propel the risk barometer USD/JPY pair. However, stronger Japan data underpin the hawkish bias from the BoJ and weigh on the quote.

Against this backdrop, the US 10-year Treasury yields struggle to extend a three-day uptrend near 3.54% while the US Dollar Index (DXY) retreats to 102.20 at the latest. Further, the S&P 500 Futures remain mildly offered and so do stocks in the Asia-Pacific region.

Looking forward, the US fourth-quarter (Q4) Employment Cost Index (ECI) and the Conference Board’s Consumer Confidence gauge for January will be eyed for immediate directions. As per the market consensus, the US Consumer sentiment gauge may improve but a likely softer print of the US ECI, to 1.1% from 1.2%, could strengthen the dovish bias surrounding Fed and can recall the USD/JPY bears.

Technical analysis

A daily closing beyond the 21-DMA hurdle, currently around 130.40, becomes necessary to keep USD/JPY buyers on the table.