USD/JPY tracks corrective bounce in yields to aim for 134.00 ahead of US inflation data

• USD/JPY picks up bids to rebound from one-month low, snaps three-day downtrend.
• Markets consolidate SVB-led moves amid mixed concerns surrounding Fed.
• US two-year Treasury bond yields pare the biggest daily loss since October 1987.
• Receding fears of US financial crisis contagion, optimism for China recovery also favor Yen buyers.

USD/JPY clings to mild gains around 133.70 as it snaps a three-day downtrend with a bounce off the one-month low marked the previous day. In doing so, the Yen pair cheers the market’s consolidation of the moves induced by the US actions to tame fears emanating from the Silicon Valley Bank (SVB) and the Signature Bank. Adding strength to the quote’s rebound could be the recent recovery in the US Treasury bond yields after the previous day’s bond market havoc.

That said, the US 10-year Treasury bond yields seesaw around 3.56%, after bouncing off the monthly bottom of 3.418%, whereas the two-year counterpart rebounds from the lowest levels since September 2022 to print mild gains of around 4.05% by the press time. It should be noted that the US two-year Treasury bond yields dropped the most since 1987 the previous day while the latest rebound could be a U-turn from the 200-DMA support ahead of important US data.

It should be noted that the traders witnessed heavy bond buying the previous day as the US banking regulators rushed to defend the Silicon Valley Bank (SVB) and the Signature Bank after their fallouts. US banking regulators undertook joint actions to tame the risks emanating from SVB and Signature Bank during the weekend.  While announcing the plan, US President Joe Biden noted on Monday that investors in those banks will not be protected and reminded that "no one is above the law." However, the US President also vowed to take whatever action was needed to ensure the safety of the US banking system, per Reuters.

However, the policymakers from the UK and Europe, as well as some of the Asia-Pacific majors, have ruled out the odds of witnessing a financial crisis at home after the SVB saga, which in turn might have also pleased the USD/JPY buyers of late.

Alternatively, receding hawkish Fed bets and downbeat US inflation expectations join the market’s jittery status amid the US-China tensions and SVB talks seem to challenge the USD/JPY buyers.

Also read: US inflation expectations drop to five-week low ahead of CPI release

Above all, the Yen pair traders seem to position themselves for the US CPI. However, major attention should be given to the risk catalysts and the yields. That said, the US CPI is likely to ease to 6.0% YoY versus 6.4% prior while CPI ex Food & Energy may slide to 5.5% YoY from 5.6% prior.

Also read: US Inflation Preview: Five scenarios for trading the Core CPI whipsaw within the SVB storm

Technical analysis

Although the 50-DMA restricts immediate downside of the USD/JPY pair around 132.50, the recovery moves remain elusive unless staying below the previous support line from early February, around 136.20 by the press time.