USD/JPY keeps pullback from six-year high around 118.50 ahead of BOJ

• USD/JPY bounces off intraday low but prints the second consecutive daily fall from multi-month top.
• Yields keep post-Fed weakness, US stock futures drop amid mixed concerns over Ukraine-Russia.
• BOJ is expected to keep benchmark interest rate unchanged, less likely to turn hawkish despite inflation fears poke policymakers.
• BOJ, qualitative factors will direct short-term USD/JPY moves.

USD/JPY seesaws around 118.50 on Friday’s Tokyo open, following the first daily negative closing in nine days.

While softer yields weigh on the USD and triggered the quote’s pullback from the highest levels since 2016 the previous day, the yen pair’s latest weakness could be linked to the market’s anxiety ahead of today’s Bank of Japan (BOJ) monetary policy meeting.

The US Treasury yields couldn’t cheer the Fed’s rate-hike and snapped an eight-day winning streak on Thursday, down 3.5 basis points (bps) near 2.15% at the latest. The reason could be linked to Fed Chair Jerome Powell’s speech that turned the cold water on the face of traders expecting prolonged reflation fears.

In addition to the yields, mixed concerns over the Russia-Ukraine crisis and the resulting challenges for Japan’s economy, as it imports most of its oil, also weigh on the USD/JPY prices recently. As per the latest updates, Ukraine brokers a top-tier gathering of Russian President Putin and his Ukrainian counterpart Volodymyr Zelenskyy to discuss the 15-point peace plan in detail. However, the Western warning that Moscow may contemplate the use of nuclear weapons dims the optimism. Also challenging the market’s mood are the fears over Russia’s default, as cited by the global rating agency S&P, even if some on the floor confirm receiving coupon payment due this week in the USD.

Elsewhere, China steps back from previously hawkish comments to ease regulatory crackdown on the property and IT companies while the Organisation for Economic Cooperation and Development (OECD) also fears more than 1.0% global economic loss due to the Ukraine crisis. The same weigh on the risk appetite and USD/JPY prices, resulting in the latest downside of the S&P 500 Futures.

Talking about data, Japan’s National Consumer Price Index (CPI) for February rose to 0.9% YoY versus 0.3% expected and 0.5% prior.

Looking forward, strong inflation data from Japan may push BOJ policymakers to rethink their easy-money bias, which in turn can exert additional downside pressure on the USD/JPY.

Read: USD/JPY Weekly Forecast: Federal Reserve and the Bank of Japan head for different exits

Technical analysis

Unless declining below the previous resistance line from November 2021, around 117.80 by the press time, USD/JPY buyers keep eyes on the 120.00 psychological magnet, with the latest peak of 119.12 acting as an intermediate halt.