USD/JPY retreats towards 144.50 as Japan meddling woes join pullback in yields, US inflation clues eyed

• USD/JPY lacks upside momentum near the Year-To-Date high, prods four-day uptrend.
• Nearness to 145.00 psychological level for Japan intervention joins US Dollar’s retreat to weigh on Yen pair.
• Yields seesaw after rising the most in a week as traders await more clues to confirm Fed policy pivot.
• US PPI, Michigan CSI eyed for further directions, risk catalysts are the key to follow.

USD/JPY bulls run out of steam below 145.00, making rounds to 144.80-90 during early Friday in Europe, as market players struggle for clear directions amid mixed clues. Also challenging the Yen pair is the cautious mood ahead of the mid-tier US data.

That said, the 10-year Treasury bond yields in the US and Japan fade the previous day’s bullish momentum while making rounds to 4.10% and 0.585% by the press time. In doing so, the yields portray the market’s lack of confidence in the major central bankers’ statements suggesting nearness to the peak rates.

On Thursday, unimpressive US inflation data allowed the Fed policymakers to cheer the victory over price pressure but the traders need more details to welcome the policy pivot concerns.

Talking about the data, the headline Consumer Price Index (CPI) for July matched market forecasts to reprint 0.2% MoM figures. However, the yearly CPI improved slower-than-expected 3.3% to 3.2% YoY for the said month, versus 3.0% previous readings, marking the first acceleration in the annual rate in 13 months.

Following the statistics, a slew of policymakers from the Federal Reserve (Fed) crossed wires while conveying the US central bank’s hard-earned victory on inflation. However, their tones appeared less convincing for doves and joined the risk-negative concerns about China to fuel the US Treasury bond yields afterward.

Philadelphia Federal Reserve Bank President Patrick Harker raised a toast to the Fed’s progress in its fight against inflation and was joined by Boston Federal Reserve President Susan Collins and Atlanta Federal Reserve Bank President Raphael Bostic to cheer the softer US CPI. However, San Francisco Fed President Daly turned down the cheers for their victory while saying, “There’s still more work to do.” 

On the other hand, China allows the local governments to use the provincial-level governments to raise about 1 trillion yuan ($139 billion) via bond sales to repay the debt of local-government financing vehicles (LGFV) and other off-balance sheet issuers, per Bloomberg. The news justifies the market’s confidence in the Chinese policymakers’ capacity to avoid recession and weigh on the US Dollar, via a slightly positive market mood. Additionally, the fears of witnessing more geopolitical tussles between the West and China, mainly due to the US restriction on investment in China technology companies and the likely repeat of the measures by the UK and European Union, weighed on the sentiment and put a floor under the USD/JPY price.

It’s worth noting that the Japanese officials have been defending the easy-money policy and keep the USD/JPY on the front foot even if the fears of market intervention by the authorities around the 145.00 round figure prod the Yen pair buyers of late.

Moving on, the US Producer Price Index (PPI) for July, the preliminary readings of the University of Michigan’s (UoM) Consumer Sentiment Index (CSI) for August and the UoM 5-Year Consumer Inflation Expectations for the said month will also be important to watch for clear directions of the USD/JPY pair.

Technical analysis

A daily closing beyond the 145.10-20 region comprising the previous peak and a three-week-old rising resistance line becomes necessary for the USD/JPY bulls to keep the reins. However, the overbought RSI (14) line prods the upside momentum of late.