USD/JPY bears poke 136.00 as BOJ hawks flex muscles

• USD/JPY extends Friday’s losses to challenge two-week uptrend.
• Chatters over BOJ’s rate hike gain momentum as dovish leader Haruhiko Kuroda nears retirement.
• US Dollar’s failure to cheer hawkish Fedspeak adds strength to the pullback moves.
• Risk catalysts, BOJ and the Fed’s preferred inflation gauge eyed for clear directions.

USD/JPY holds lower grounds near the intraday bottom of 135.77 as the Yen buyers keep the reins ahead of this week’s Bank of Japan (BOJ) monetary policy meeting. With this, the quote prints a two-day downtrend as traders anticipate hawkish signals from the Japanese central bank as the utter dove Governor Haruhiko Kuroda nears his retirement looming in April.

During the weekend, Reuters reported that Japan's government is set to revise a decade-old joint statement with the Bank of Japan (BOJ) that commits the central bank to achieve its 2% inflation "at the earliest date possible," Kyodo news agency reported on Saturday, citing government sources.

Following that, BOJ’s former deputy governor Hirohide Yamaguchi said, “Bank of Japan (BOJ) must make its monetary policy framework more flexible and stand ready to raise its long-term interest rate target next year if the economy can withstand overseas risks.”

However, the latest comments from Japan’s Chief Cabinet Secretary Hirokazu Matsuno challenges the USD/JPY bears while pouring cold water on the face of hawkish expectations from the BOJ. “The government hopes to continue working closely with the Bank of Japan (BoJ) to achieve sustained economic growth and price stability, based on the agreement made in the joint statement,” said Japan’s Matsuno.

On the other hand, the US Dollar Index (DXY) prints the first daily loss in three, down 0.20% intraday near 104.55, amid cautious optimism in the market. In doing so, the DXY struggles to justify the recently hawkish comments from Federal Reserve Bank of Cleveland President Loretta Mester and New York Federal Reserve President John Williams. The reason could be linked to Friday’s downbeat prints of the preliminary US PMIs for December, as well as the Fed’s 0.50% rate hike.

Elsewhere, the US Treasury yields portray recession amid hawkish Fedspeak and hence challenge USD/JPY bears amid a sluggish Asian session.

Looking forward, USD/JPY traders should pay attention to the risk catalysts, as well as BOJ-linked chatters in the market ahead of Tuesday’s Monetary Policy Meeting. Even if the Japanese central bank isn’t expected to alter the current monetary policy during this meeting, the hints for future moves could be enough to please the bears.

Technical analysis

A two-week-old rising wedge formation restricts immediate USD/JPY moves between 134.85 and 138.30.