USD/JPY retreats further from multi-year tops, depressed below mid-113.00s

• USD/JPY witnessed some selling on Wednesday and snapped four days of the winning streak.
• A cautious market mood benefitted the safe-haven JPY and exerted some downward pressure.
• Retreating US bond yields kept the USD bulls on the defensive and contributed to the decline.
• Investors look forward to the US CPI report and FOMC minutes for a fresh directional impetus.

The USD/JPY pair edged lower through the Asian session and dropped to fresh daily lows, around the 113.35 region in the last hour.

The pair witnessed some selling during the first half of the trading action on Wednesday and eroded a major part of the overnight gains to the highest level since December 2018. This marked the first day of a negative move in the previous five sessions and was sponsored by a combination of factors.

Fears of a return of stagflation, along with concerns about spillover from China Evergrand's debt crisis continued weighing on investors' sentiment. This, in turn, extended some support to the safe-haven Japanese yen and turned out to be a key factor that exerted pressure on the USD/JPY pair.

Bearish traders further took cues from the overnight pullback in the US Treasury bond yields, which kept the US dollar bulls on the defensive. Apart from this, Wednesday's downtick could further be attributed to profit-taking amid extremely overbought conditions on short-term charts.

That said, the downside is likely to remain cushioned amid expectations for an early policy tightening by the Fed. Despite Friday's disappointing headline NFP print, investors seem convinced that the Fed remains on track to begin rolling back its massive pandemic-era stimulus as soon as November.

The markets also seem to have started pricing in the possibility of an interest rate hike in 2022 amid worries that the recent surge in crude oil/energy prices will stoke inflation. Hence, the focus shifts to the US consumer inflation figures, due later during the early North American session.

This will be followed by the release of the FOMC monetary policy meeting minutes. A stronger CPI print and (or) a hawkish Fed could bring further gains for the US currency. This, along with the US bond yields and the broader market risk sentiment, would provide a fresh impetus to the USD/JPY pair.

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