USD/JPY pulls back from weekly highs near 142.00 amid anticipation for Fed decision

• USD/JPY retreats despite the rise in US Treasury bond yields and growing market confidence ahead of the Fed’s decision.
• A boost in US consumer confidence to a two-year high fails to steady USD/JPY as concerns about a potential recession persist.
• Projections from Japan’s Cabinet Office for modest inflation and GDP growth for 2023 and 2024 add further complexity to the currency’s trajectory.

USD/JPY retreats from weekly highs of 141.81 and falls toward current exchange rates amid a risk-on impulse, although US Treasury bond yields are rising. Traders brace for the US Federal Reserve (Fed) July meeting, which starts today and ends tomorrow, followed by the Fed Chair Jerome Powell press conference. At the time of writing, the USD/JPY exchanges hand at 141.05.

Risk-on impulse and rising US Treasury bond yield failed to boost the USD/JPY

Wall Street is trading with gains ahead of the Fed’s decision on Wednesday. The Conference Board (CB) latest US Consumer Confidence report rose to a two-year high in July, jumping to 117 from 110.1 in June and exceeding estimates of 111.8. Even though the news was positive, consumers’ perceptions about a possible recession over the next 12 months ticked up.

Other data witnessed the House Price Index for May in year-over-year figures (YoY) standing at 2.8%, above estimates of 2.6% but below the prior’s month data, while the Richmond Fed Manufacturing Index further deteriorated from -8 in June to -9.

The USD/JPY lost traction of the US 10-year Treasury note yield, up two basis points at 3.900%, while the major dropped some 0.28%. At the same time, the US Dollar Index (DXY), a measure of the greenback’s performance against a basket of peers, clings to 0.05% gains at 101.431.

On the Japanese front, the Cabinet Office updated its projections, which according to Brown Brothers Harriman (BBH) analyst Win Thin, are expected to be aligned with the Bank of Japan’s (BoJ) forecasts. Inflation is seen at around 0.7% from 2027 to 2032 as the baseline scenario, while for 2023 is estimated at 2.6% and 1.9% in 2024. Regarding economic growth, the office sees a 1.3% GDP growth in 2023 and 1.2% in 2024.

USD/JPY Price Analysis: Technical outlook

The USD/JPY daily chart shows the uptrend remains in play, but the ongoing pullback extending below the Kijun-Sen line at 141.15, could open the door for further weakness below the 141,00 figure. Next floor would be an upslope support trendline drawn from March lows of 129.64, at around 140.60/50, followed by the confluence of the Senkou Span A/B at around 140.37/35, followed by the Tenkan-Sen line at 139.59. On the other hand, to flip the trend and resume upwards, USD/JPY must reclaim 142.00, opening the door for further upside toward the year-to-date (YTD) high at 145.07.