USD/JPY traces mildly bid yields near 142.00, ignores hawkish BoJ concerns ahead of US CPI

• USD/JPY recovers from the lowest level in a week, prints the first daily gain in three.
• US 10-year Treasury bond yields consolidate the biggest daily slump in three months.
• China-linked fears, hawkish BoJ Summary of Opinions and pre-inflation moves propel Yen prices.
• US CPI, PPI and BoJ chatters will be important for clear directions.

USD/JPY renews its intraday high near 142.00 as it tracks the recovery in the US Treasury bond yields during early Monday. In doing so, the Yen pair ignores hawkish signals flashed by the Summary of Opinions for Bank of Japan’s (BoJ) monetary policy meeting held in July. The reason could be linked to the US Dollar’s rebound amid the cautious mood ahead of this week’s US Consumer Price Index (CPI) and Producer Price Index (PPI) for July.

Earlier in the day, BoJ’s Summary of Opinions for the July meeting showed that one member said the achievement of 2% inflation in a sustainable and stable manner seems to have clearly come in sight. The news joins signals of tweaking Yield Curve Control (YCC) policy with greater care to weigh on the JPY amid hawkish BoJ concerns.

In the last week, Bank of Japan’s (BoJ) two unscheduled bond-buying programs and the decision-makers’ defenses of the easy-money policy flags fears of the BoJ’s exit from the record low interest rate and/or a tweak to the Yield Curve Control (YCC) policy.

Bank of Japan (BoJ) released a full version of its quarterly outlook report while stating that Japan's core consumer inflation is likely to gradually slow toward year-end. Bank of Japan (BoJ) Deputy Governor Shinichi Uchida signaled the Japanese central bank’s meddling before the 10-year yield hits 1.0% and fueled the Japanese Yen (JPY). The policymaker also said, “If economic and price conditions change from now, there is a chance BoJ’s response could change.

However, the US Dollar Index’s (DXY) ability to snap a two-day downtrend with mild gains around 102.10 favored the Yen pair to return to the bull’s radar by printing the first daily gain in three. Further, the US credit rating downgrade also bolstered the Greenback’s haven demand and favored the USD/JPY bulls as well.

It’s worth noting that the DXY rose in the last three consecutive weeks before retreating amid mixed US data. That said, the US employment report posted a softer-than-expected Nonfarm Payrolls (NFP) figure of 187K, versus 185K prior (revised) and 200K market forecasts, whereas the Unemployment Rate eased to 3.5% from 3.6% expected and previous readings. Further, the Average Hourly Earnings reprinted 0.4% MoM and 4.4% YoY numbers by defying the expectations of witnessing a slight reduction in wage growth.

Elsewhere, the hawkish comments from Federal Reserve (Fed) Governor Michelle Bowman might have recently triggered the USD/JPY rebound as she said that the Fed should remain willing to raise the federal funds rate at a future meeting if the incoming data indicate that progress on inflation has stalled.

 Previously, Atlanta Federal Reserve Bank President Raphael Bostic said on Friday to Bloomberg, that the central bank is likely to keep monetary policy in a restrictive territory well into 2024. On the contrary, Chicago Fed President Austan Goolsbee stated that they should start thinking about how long to hold rates.

Looking ahead, USD/JPY traders should seek more clues about the BoJ’s exit from the ultra-easy monetary policy for clear directions. Also important to watch will be this week’s US inflation data as the Fed’s September rate hike looms.

Technical analysis

Although the 21-day Exponential Moving Average (EMA) restricts immediate USD/JPY downside near 141.50, downbeat oscillators join a six-week-old horizontal resistance area surrounding 143.90-144.00 to challenge the Yen pair’s recovery.