USD/JPY steadies near six-week low under 131.00 on mixed Japan inflation, US data eyed

• USD/JPY prods two-day downtrend at the lowest levels since February 10.
• Japan’s National Consumer Price Index eased in February, National CPI ex Food, Energy improved.
• Shift in market’s mood, corrective bounce in yields also put a floor under the Yen price.
• US data, risk catalysts will be crucial for fresh impulse.

USD/JPY portrays a corrective bounce off the multi-day low amid mixed inflation numbers from Japan and a shift in the sentiment during early Friday, following a volatile week. That said, the Yen pair picks up bids to 130.80 as it prints the first daily gain in three while keeping the late Thursday’s bounce off the lowest levels since February 10.

Japan’s National Consumer Price Index eased to 3.3% YoY in February from 4.3% prior and 4.1% market forecasts. However, the National CPI ex Food, Energy rose to 3.5% YoY compared to the analysts’ estimates of 3.4% and the 3.2% prior readings.

Apart from the mixed Japan data, a shift in the market’s mood, amid increasing fears of banking rout and Fed rate hikes seems to also allow the US Dollar to pare the weekly losses, which in turn allows the Yen pair to consolidate the latest losses.

It should be noted that a collapse in the banking shares and chatters that the Fed’s emergency lending to the banks has ballooned the balance sheet, renewing fears of more Fed rate hikes, which in turn allowed the DXY to pare recent losses. Also favoring the US Dollar Index buying could be the mixed US data.

Reuters said, “Federal Reserve emergency lending to banks, which hit record levels the last week, remained high in the latest week, amid continued large-scale extensions of credit to the financial system, which now includes official foreign borrowing.” The news also mentioned that borrowing from the Fed caused the size of its overall balance sheet to move to $8.8 trillion from $8.7 trillion the prior week.

Elsewhere, mixed US data and comments from US Treasury Secretary Janet Yellen also allow USD/JPY to lick its wounds.

That said, the US Chicago Fed National Activity Index (CFNAI) dropped to -0.19 in February versus 0.0 expected and 0.23 prior. Further, Weekly Initial Jobless Claims declined to 191K for the week ended on March 18, versus 192K prior and 203K market forecasts. It should be noted that the US New Home Sales rose 1.1% in February from 1.8% prior, versus 1.6% analysts’ estimation, whereas Kansas Fed Manufacturing Index for March rose to 3.0 from -9.0 prior and 6.0 expected.

On the other hand, the US Treasury Secretary’s testimony in front of the House Appropriations Financial Services Subcommittee probed the market’s previous risk-on mood and allowed the USD/JPY to recover from multi-day low as she said, “China and Russia may want to develop an alternative to the US dollar,” while also showing preparedness for additional deposit actions `if warranted'. “Strong actions have been taken to ensure deposits are safe,” said US Treasury Secretary Yellen.

While portraying the mood, Wall Street pared intraday gains and closed with a light green number whereas the Treasury bond yields also recovered but failed to post a positive closing. That said, S&P 500 Futures print mild gains at the latest.

Moving on, preliminary readings of the US S&P Global PMIs for March and the Durable Goods Orders for February will be crucial for the USD/JPY pair traders to watch for clear directions.

Also read: S&P Global PMIs Preview: EU and US figures to shed light on economic progress

Technical analysis

A successful rebound from the 10-week-old ascending support line, around 130.40 by the press time, allows USD/JPY to challenge the downward-sloping resistance line stretched from March 08, near 131.25 at the latest.