USD/JPY slides towards 138.50 on mixed Japan data, pullback in yields, focus on China, Fed talks

• USD/JPY fades bounce off three-month low, renews intraday low of late.
• Japan Unemployment Rate remained unchanged, Retail Trade eased in October.
• China Covid woes, protests join hawkish Fedspeak to challenge bears.
• Second-tier US data will decorate the calendar ahead of the key US jobs report.

USD/JPY takes offers to renew intraday low near 138.60 as Tokyo opens on Tuesday. The Yen pair’s latest losses could be linked to the recent retreat by the US Treasury yields, as well as mixed data from Japan. In doing so, the risk barometer pair fails to respect the US Dollar strength, mainly backed by the hawkish comments from the Federal Reserve (Fed) policymakers and the Covid woes emanating from China.

Japan’s Unemployment Rate reprinted 2.6% mark for October versus 2.5% expected whereas Jobs / Applicants Ratio improved to 1.35 by matching upbeat forecasts compared to 1.34 prior. Further, Japan’s Retail Trade eased to 4.3% YoY during the stated month, versus 5.0% market consensus and 4.8% (revised up) prior, while the monthly Retail Trade rose 0.2% compared to downbeat forecasts of -0.3% and 1.1% previous readings.

Elsewhere, the US 10-year Treasury yields ease to 3.688%, down 1.4 basis points (bps), as traders weigh comments from the Fed speakers.

That said, Richmond Federal Reserve Bank President Thomas Barkin recently mentioned that he supports smaller interest-rate hikes ahead as the central bank moves to bring down too-high inflation. Previously, Cleveland Fed President Loretta Mester marked the need to see several more good inflation reports and more signs of moderation to back the pause in rate hikes. On the same line, St. Louis Fed President James "Jim" Bullard stated that the situation calls for much higher interest rates than what we've been used to. Further, New York Federal Reserve Bank President John Williams said that he believes the Fed will need to raise rates to a level sufficiently restrictive to push down on inflation and keep them there for all of next year. Additionally, Fed Vice Chair Lael Brainard advocated for tighter monetary policy while citing risk-management reasons.

China refreshed the all-time high daily Covid infections by printing around 40,300 new cases and justified the government’s status quo on the Zero-Covid policy despite the widespread protests to turn down the same. “Hundreds of demonstrators and police clashed in Shanghai on Sunday night as protests over the restrictions flared for the third day and spread to several cities, with police on Monday stopping and searching people at the sites of weekend protests in Shanghai and Beijing,” reported Reuters.  

Against this backdrop, the market sentiment remains sluggish and weighs on the US stock futures, following a downbeat performance of Wall Street.

Moving on, the monthly US Confederation Board’s (CB) Consumer Confidence for November will join multiple speeches from the Fed policymakers to entertain USD/JPY traders ahead of Friday’s key US employment data. However, major attention should be given to the central bankers and the Coronavirus updates for clear directions.

Technical analysis

A two-week-old descending trend line restricts the short-term USD/JPY upside near 139.50.