USD/JPY tracks yields to retreat from five-week high below 135.00 amid BoJ, Fed concerns

• USD/JPY prods two-day uptrend as it eases from multi-day high.
• Fears that Japan’s fiscal policy, recent bond buying challenge BoJ’s ultra-loose monetary policy check Yen pair buyers.
• Hawkish Fed bets, upbeat US data favor yields, US Dollar despite latest pullback in prices.
• Second-tier US data, risk catalysts eyed for clear directions.

USD/JPY bulls struggle to keep the reins during a three-day winning streak amid early Tuesday. While portraying the same, the Yen pair eases from an intraday high, as well as the highest levels since March 15, to 134.50 at the latest.

The latest chatters surrounding the Bank of Japan’s (BoJ) easy money policy seem to weigh on the Yen pair as the decision-makers try to defend the current policy amid challenges from bond buying and fiscal moves.

That said, new Bank of Japan (BoJ) Governor Kazuo Ueda said that BoJ bond purchases are not aimed at monetizing government debt while adding, “Interest rates are determined by various factors.”

Before BoJ’s Ueda, the newly appoint BoJ Deputy Governor Shinichi Uchida also tried to defend the current monetary policy as he said, “Fiscal constraints won't undermine the ability to carry out monetary policy.”

Elsewhere, the market’s anxiety ahead of the key US PMIs and Japan inflation numbers, as well as due to mixed updates from China, also weighs on the USD/JPY price. While portraying the mood, S&P 500 Futures remain indecisive even as Wall Street closed with mild gains whereas Japan’s Nikkei 225 rises 0.67% intraday to 28,705 at the latest.

On the other hand, recently upbeat US data fuels the market’s bets on the 0.25% Fed rate hike in May, as well as cut the odds of a rate reduction from the US central bank sometime in late 2023. The same could be linked to the recently firmer US Treasury bond yields, before the latest retreat. That said, the US 10-year and two-year Treasury bond yields snap a three-day uptrend with mild losses around 3.60% and 4.18% by the press time.

Not only the data and the yields but Fed talks also favored the hawkish Fed bets and the USD/JPY buyers previously. That said, the NY Empire State Manufacturing Index jumped to 10.8 for April while snapping the four-month downtrend, as well as marking the highest level since July last year. Further, the US National Association of Home Builders (NAHB) housing market index also rose for the fourth consecutive month in April to 45, versus 44 expected and prior reading. Following the data, Richmond Fed President Thomas Barkin said on Monday that he wants to see more evidence of inflation settling back to target. The policymaker also added that he feels reassured by what he is seeing in the banking sector.

Moving on, USD/JPY traders may witness further volatility as the economic calendar gets active. Though, Fed bets and yields are the key to follow for clear directions.

Technical analysis

USD/JPY pair’s successful trading above the 200-day Exponential Moving Average (EMA), around 133.70 by the press time, allows the Yen pair buyers to remain hopeful despite the recent struggle.