USD/JPY looks to regain 139.00 amid sluggish yields, Fed Chair Powell eyed

• USD/JPY picks up bids after two-day downtrend, remains sluggish of late.
• Cautious mood ahead of key data/events restrict the Yen pair’s immediate moves.
• Optimism surrounding China contrasts with hawkish hopes from Fed’s Powell to challenge traders.
• US ADP Employment Change, second readings of US Q3 GDP will also be important for immediate directions.

USD/JPY remains sidelined around 138.80, despite picking up bids to snap two-day uptrend during early Wednesday morning in Tokyo. In doing so, the Yen pair portrays the market’s cautious mood ahead of the key catalysts while tracking sluggish US Treasury bond yields.

While portraying the mood, S&P 500 Futures print mild losses after a mixed closing of Wall Street whereas the US 10-year Treasury bond yields ended Tuesday on a firmer footing, up six basis points (bps) to 3.748%, remain sidelined near the same at the latest. That said, the two-year US Treasury bond yields stop the previous day’s run-up near 4.48%.

Talking about the market’s positives, China announced multiple measures to ease the strict lockdown in the key areas after witnessing a retreat in the daily Covid infections from a record high. Even so, the world’s second-largest economy kept its Zero-Covid policy intact. Bloomberg reported the reopening of some city buildings in the greater Zhengzhou region, the home of a key iPhone plant. Earlier on Tuesday, the news broke that China's Guangdong province will allow the close contacts of Covid cases to quarantine at home.

On the same line could be the softer US data as Conference Board (CB) Consumer Confidence Index dropped to 100.2 in November versus 102.2 prior (revised down from 102.5).

However, hawkish comments supporting the US Federal Reserve’s steadily high-interest rates, even if a mild cut in the aggression is expected, seemed to have kept the US Dollar Index (DXY) on a firmer footing. New York Federal Reserve Bank President John Williams and St. Louis Fed President James "Jim" Bullard were the latest supporters of higher rates.

It should be noted that the looming concerns over the Bank of Japan’s (BOJ) monetary policy tightening in 2023 appeared to have favored the USD/JPY bears of late.

Looking forward, risk catalysts like headlines from China and Fedspeak, as well as chatters surrounding the BOJ, may direct immediate USD/JPY moves. However major attention will be given to Fed Chairman Jerome Powell’s first public appearance since November Federal Open Market Committee (FOMC) meeting amid hawkish hopes. Furthermore, the US ADP Employment Change for November, expected 200K versus 239K prior, will precede the second reading of the US Gross Domestic Product (GDP) for the third quarter (Q3), expected to confirm 2.6% Annualized growth, to populate the economic calendar too.

Technical analysis

A three-week-old triangle restricts immediate USD/JPY moves between 139.10 and 137.50 by the press time.