USD/JPY traces yields to refresh monthly high below 144.00 amid softer Japan inflation clues ahead of US CPI

• USD/JPY clings to mild gains as bulls print monthly peak during four-day winning streak.
• Yields pare weekly losses ahead of US inflation data amid mixed sentiment.
• Japan PPI for July defends dovish BoJ concerns.
• US CPI needs strong positive figures to defy Fed policy pivot.

USD/JPY picks up bids to refresh the monthly high near 143.90 as it ignores the US Dollar inaction ahead of the key data during early Thursday. In doing so, the Yen pair justifies the recently firmer US Treasury bond yields, as well as the dovish concerns about the Bank of Japan (BoJ) after Japan inflation clues.

That said, the 10-year Treasury bond yields in the US and Japan both print the first daily gains in three around 4.02% and 0.585% respectively as markets brace for the US inflation data amid cautious optimism after witnessing no major shock from China price pressure clues.

On the other hand, Japan’s Producer Price Index (PPI) for July eased to 3.6% YoY from 4.1% prior and 3.5% market forecasts while the monthly figures improved to 0.1% Mom versus 0.2% expected and -0.2% previous readings for the said month.

With this, the BoJ doves are likely to keep defending the ultra-easy monetary policy, especially amid the growing concerns that the major central banks–which previously announced rate hikes–are likely to pause the hawkish trajectory soon.

Elsewhere, mildly bid S&P500 Futures and firmer Nikkei 225 also underpins the USD/JPY run-up due to the pair’s risk-barometer status. It’s worth noting that the US-China headlines have been against the mood but seemed mostly ignored of late.

That said, China's Commerce Ministry showed grave concerns and marked the right to take measures in retaliation early Thursday in Asia, per Reuters. The news also quotes China Commerce Ministry as saying, “Hopes that the US will respect laws of market economy and the principle of fair competition.” Earlier in the day, US President Joe Biden signed the much-awaited bill that allows the US Treasury Department to prohibit or restrict certain US investments in Chinese entities, per Reuters.

Previously, the looming economic fears from China, Europe and the UK join the global rating agencies’ crackdown on banks to weigh on the sentiment. On the same line are fears of deflation in China and the market’s doubts about future moves of the major central banks. However, the US Dollar struggled to cheer the risk-off mood amid downbeat yields.

Moving on, inflation data, per the Consumer Price Index (CPI) for July, will be crucial for USD/JPY traders to watch for clear direction. Market forecasts suggest an improvement in the headline CPI to 3.3% YoY versus 3.0% prior while the Core CPI, namely the CPI ex Food & Energy, may remain unchanged at 4.8%. The statistics become all the more important after the latest disappointment from the Nonfarm Payrolls (NFP) for the said month and the concerns that the Fed is near its peak rate.

Also read: US CPI Preview: Forecasts from 10 major banks, monthly pace should hold at 0.2%

Technical analysis

A daily closing beyond the downward-sloping resistance line from late October 2022, close to 143.80 by the press time, becomes necessary for the USD/JPY buyers to keep the reins.