USD/JPY traces yields to retreat from multi-year high towards 134.00, Fed, BOJ eyed

• USD/JPY renews intraday low but stays around the highest levels since late 1998.
• Treasury yields seesaw around 11-year high, stock futures print mild gains amid market’s consolidation.
• Hawkish Fed expectations, BOJ intervention challenge traders ahead of the key central bank meetings.
• Japan Industrial Production may entertain traders, risk catalysts are important as well.

USD/JPY takes offers to refresh intraday low around 134.15 as markets calibrate for the key central bank decisions during a quiet Asian session on Tuesday. The quote refreshed a two-decade high the previous day before reversing from 135.20. However, a pullback in the yields and the Bank of Japan’s (BOJ) intervention portrayed a Doji candlestick for Monday.

That said, US 10-year Treasury yields extend pullback from the highest levels since April 2011, marked the previous day, while staying indifferent near 3.37% by the press time.

The bond moves seem to ignore the latest hawkish Fed expectations, or might be preparing for the same, while refraining from further upside.

The market’s fears of faster/heavier rate hikes during this week’s Federal Open Market Committee (FOMC) underpinned the USD/JPY upside the previous day before the BOJ intervention dragged it down. The pullback moves could also be linked to the yen’s traditional safe-haven appeal.

Friday’s US inflation data propelled calls for faster/heavier rate increases and spread the market fears as hawkish central bank actions tease recession woes. The same pushed multiple analysts ranging from JP Morgan to Goldman Sachs to revise their Fed forecasts and include expectations of a 75 bp rate hike in June and July. “Our Fed forecast is being revised to include 75bps hikes in June and July,” said Goldman Sachs in its latest Fed forecasts per Reuters.

It should be noted that the US stock futures also print mild gains while consolidating the recent heavy downside moves amid the market’s indecision. However, Japan’s Nikkei 2255 remains 2.0% down to around 26,250 during the initial hour of Tokyo opening.

Moving on, USD/JPY traders will pay attention to Japan’s Industrial Production for April, expected to remain unchanged at -4.8% YoY and -1.3% MoM.

Above all, the monetary policy moves of the Fed and the BOJ will be crucial to determining near-term USD/JPY moves.

Technical analysis

Monday’s Doji at multi-year top joins overbought RSI (14) to keep sellers hopeful of witnessing further downside towards April’s peak of 131.25. However, the 133.00 round figure offers immediate support to the yen pair before recalling the sellers.