USD/JPY dribbles around 20-year high near 134.50 amid firmer yields, US inflation in focus

• USD/JPY grinds higher after refreshing the multi-year top during the five-day uptrend.
• Yields stay firmer around monthly peak amid hawkish hopes from global central banks.
• Inflation fears, growth concerns join BOJ vs. Fed battle to also propel the prices.
• Japan’s PPI in May eased on YoY basis but increased on MoM.
• US CPI, risk catalysts eyed for fresh impulse.

USD/JPY takes rounds to a two-decade high surrounding 134.50 during the initial Asian session on Friday. In doing so, the yen pair portrays the market’s cautious mood ahead of the key US inflation data. However, hopes of further monetary policy divergence between the US Federal Reserve (Fed) and the Bank of Japan (BOJ) keep the pair buyers hopeful.

That said, Japan’s Producer Price Index (PPI) for May eased to 9.1% YoY from 9.8% expected and revised down prior figure. Further, the MoM print also dropped to 0.0% versus 0.5% forecasts and 1.3% previous reading, revised from 1.2%.

Elsewhere, the US Jobless Claims rose past 210K forecasts to 229K for the week ended on June 3. Further, US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, remain steady at around 2.75% in the last two days by the end of Thursday’s North American session.

It’s worth noting that the growing concerns over the surging price pressure to challenge the global economic growth seem to have weighed on the market sentiment of late. The risk-aversion wave also gained support from the recent hawkish actions from the major central banks, except for the BOJ.

On Thursday, the European Central Bank (ECB) conveyed fears of inflation weighing on growth, via their forecasts. The bloc’s central bank also matched market consensus while announcing an end of Quantitative Easing from July 1 and 25 basis points (bps) of a rate hike on July 25, versus expectations of a 50 bps move. Alternatively, BOJ Governor Haruhiko Kuroda has been spotted favoring the easy money policies to defend the export-oriented economy.

It should be observed that the White House has already conveyed the risk of higher inflation ahead of today’s US Consumer Price Index (CPI) data while the World Bank (WB) and the Organisation for Economic Co-operation and Development (OECD) have raised concerns over the global recession. Also contributing to the risk-aversion is the return of activity restrictions and mass testing in China, due to the resurgence of covid cases.

Amid these plays, the Wall Street benchmarks dropped the heaviest in the week whereas the US 10-year Treasury yields also refreshed their monthly high before retreating to 3.04%, around 3.057% at the latest. Further, the US Dollar Index (DXY) also rallied the most in a week while cheering the greenback’s safe-haven status.

That said, USD/JPY traders will pay attention to the risk catalysts ahead of the US Consumer Price Index (CPI) release for May, expected to remain unchanged near 8.3% YoY.

Also read: US Consumer Price Index May Preview: Fed policy is set but there is room for surprise

Technical analysis

USD/JPY bulls may struggle as multiple tops marked around 135.15-20 during early 2002 joins overbought RSI (14). However, pullback moves remain elusive until staying beyond the six-week-old previous resistance line around 131.70-65.