USD/JPY leans bullish towards 133.00, renews two-decade high on firmer yields, BOJ’s Kuroda

• USD/JPY remains on the front foot for the third consecutive day while poking the early 2002 levels.
• US Treasury yields stretch the first weekly gains in four ahead of inflation data.
• BOJ’s Kuroda praises economic transition backs monetary easing.
• Mixed data from Japan fails to impress traders, second-tier US statistics are also eyed.

USD/JPY bulls appear relentless as the yen pair rises to the fresh high in 20 years, poking the 132.75 level during Tuesday’s Asian session. The quote’s latest run-up could be linked to the broad strength in the US Treasury yields, as well as signals from Bank of Japan (BOJ) Governor Haruhiko Kuroda.

Friday’s strong US Nonfarm Payrolls (NFP) and the last dose of hawkish Fedspeak before the blackout norm favored the US Treasury yields to snap a three-week downtrend by the end of Friday. The same underpins the recently escalating hopes of a 0.5% rate hike during September, versus previously thin chatters surrounding the key issue. The benchmark bond coupon rises two basis points (bps) to 3.57% by the press time.

On the other hand, Bank of Japan (BOJ) Governor Haruhiko Kuroda mentioned that Japan’s economy is improving as a trend. The policymaker also defends the easy money policies of the BOJ while saying, “Unwinding monetary stimulus hastily could hurt Capex and domestic demand.”

It should be noted, however, that upbeat headlines from China and the market’s anxiety ahead of Thursday’s European Central Bank (ECB) monetary policy meeting, as well as Friday’s US Consumer Price Index (CPI) for May, seem to test the yields and the USD/JPY buyers.

Recently, China Securities Journal (CSJ) praised the country’s virus control and policy stimulus while expecting economic improvement in the second half (H2) of 2022. Previously, Beijing’s ability to overcome the pandemic and citing preparations to recover from the economic loss with faster unlocks joined US President Joe Biden’s likely easy stand for China, as far as showing readiness to remove Trump-era tariffs, seemed to have favored sentiment and tested the US dollar’s safe-haven appeal.

On the economic front, Japan’s Labor Cash Earnings rose more than the expected 0.5% to 1.7% in April but Overall Household Spending shrank more than -0.8% market forecasts to -1.7% YoY during the stated month.

Looking forward, yields and chatters surrounding the US inflation are the key catalysts for the USD/JPY prices. That said, Japan’s Coincident Index and Leading Economic Index for April precede the US Goods and Services Trade Balance for April to also direct short-term pair moves.

Technical analysis

USD/JPY pair’s latest run-up could be linked to its ability to cross the double tops marked in April and May.  As a result, the quote’s latest upside eyed the 138.2% Fibonacci retracement of May’s downside, around 133.30. However, overbought RSI conditions seem to challenge the USD/JPY bulls afterward.

Alternatively, pullback moves remain elusive until staying beyond the previous resistance, near 131.30-40. Following that, a pullback towards the 61.8% Fibonacci retracement (Fibo.) level of 129.45 can’t be ruled out.