USD/JPY snaps three-day winning streak to drop towards 146.00 on Japan inflation, BoJ concerns

• USD/JPY prints the first daily loss in four despite lacking downside momentum of late.
• Japan government report cites 'inflection point' in 25-year battle with deflation, teases BoJ hawks amid softer yields.
• Downbeat Japan employment data, mixed concerns about inflation keep Yen pair buyers hopeful.
• US CB Consumer Confidence, yields eyed for fresh impulse.

USD/JPY bears flex muscles around 146.40 while printing the first intraday loss, down 0.10% on a day, heading into Tuesday’s European session. In doing so, the Yen pair justifies the recent shift in the bias toward the Bank of Japan (BoJ), as well as the inflation conditions of Japan. However, downbeat concerns about Japan’s employment situations and the cautious mood ahead of the top-tier data/events prod the Yen pair sellers.

That said, Japan’s Unemployment Rate offered a surprise increase to 2.7% for July versus 2.5% expected and prior while the Jobs / Applicants Ratio eased to 1.29 for the said month versus 1.30 anticipated and previous readings.

More importantly, the Japanese government recently released its annual report suggesting the inflection point for the inflation conditions in Japan after 25 years of efforts to overcome the deflation. As a result, the hawkish bias about the BoJ gains momentum.

On Monday, the mixed details of Japan’s Coincident Index for June and the Leading Economic Index for the said month also prod the USD/JPY pair traders. It’s worth noting that BoJ Governor Kazuo Ueda cited a bit below target Japan inflation to defend the currently ultra-easy monetary policy at the Jackson Hole Symposium, which in turn prods the pair sellers.

Elsewhere, downbeat yields join the broad US Dollar weakness ahead of today’s US CB Consumer Confidence for August to weigh on the USD/JPY price.

US 10-year Treasury bond yields remain pressured around 4.19% while the US Dollar Index (DXY) also drops to 103.85 by the press time. It’s worth noting that the US two-year bond coupons reversed from the highest level since 2007 the previous day and remained depressed near 5.00% by the press time.

On the contrary, Goldman Sachs highlights the US growth outlook and BoJ’s defense of easy-money policy to forecast a 30-year high of around 155.00, versus 135.00 previous prediction, for the USD/JPY pair.

Looking ahead, concerns about the monetary policies of the Federal Reserve (Fed) and the BoJ will join the risk catalysts to entertain the USD/JPY traders before the US Conference Board’s (CB) Consumer Confidence Index for August, expected at 116.2 versus prior 117.00.

Technical Analysis

The nearly overbought RSI (14) line joins the failure to cross a two-month-old ascending resistance line, close to 146.80 at the latest, to suggest a pullback in the USD/JPY price towards the 144.60-50 support zone comprising multiple levels marked since April.