USD/JPY hovers around mid-144.00s as yields flag recession, Japan intervention looms

• USD/JPY stays pressured within four-day-old trading range near the highest levels since November 2022.
• Yield curve inversion renews recession fears, allowing US Dollar to lick data-inflicted wounds.
• Japan policymakers show readiness to intervene into money markets to defend Yen.
• Risk catalysts are the key, sluggish session likely amid US holiday.

USD/JPY fades the previous day’s recovery moves around 144.60 amid early Tuesday morning in Europe, suggesting the market’s cautious mood amid the US Independence Day holiday and mixed sentiment.

It’s worth noting that the Yen pair’s latest downbeat performance could be linked to the fears of Japan’s market intervention to defend the domestic currency as it seesaws around the highest levels in eight months. Also challenging the USD/JPY buyers are the fears of recession signaled via the US Treasury bond yields inversion.

Recently, Japanese Finance Minister Shunichi Suzuki said on Tuesday, he is “keeping in close contact with the US at the vice-ministerial level on FX.” Earlier in the day, the nation’s top currency diplomat Masato Kanda said that he is communicating with various countries including the US over currencies, per Reuters.

Elsewhere, the inversion between the US 10-year and two-year Treasury bond yields jumped to a fresh high since 1981 and renewed recession woes. “The yield curve briefly inverted to 42-year lows Monday as investors increasingly expect the Fed to raise its benchmark borrowing rates to keep inflation in check,” said Reuters after the US two-year Treasury bond yields dropped to 4.85% while the 10-year counterpart fell to 3.78%. It’s worth noting that both these benchmark yields ended Monday’s trading around 4.93% and 3.86% respectively.

On the other hand, downbeat US data prod US Dollar bulls but sour sentiment allows the greenback to grind higher amid the holiday moves. On Monday, US ISM Manufacturing PMI for June dropped to the lowest level in three years, as well as stayed below the 50.0 level for the seventh consecutive month, as it marked 46.0 figure versus 47.2 expected and 46.9 prior. Further, S&P Global Manufacturing PMI for June confirmed 46.3 figure, the lowest in five months, whereas the Construction Spending improved 0.9% MoM for May, versus 0.5% expected and 0.4% previous readouts.

Against this backdrop, S&P500 Futures retreat even as Wall Street managed to post minor gains.

Moving on, the US holiday will restrict immediate USD/JPY moves but the fears of market intervention can check the bullish bias despite hawkish Fed bets, favoring a 0.25% rate hike in July.

Technical analysis

USD/JPY bulls are running out of steam as the lower-high formation around the multi-day peak joins the overbought RSI, as well as a downside break of a three-week-old rising support line, now immediate resistance near 144.70.