USD/JPY traces yields to defend pullback from yearly top near 146.00 as clues for Fed policy pivot eyed

• USD/JPY appears dicey after reversing from yearly high.
• Fresh challenges to sentiment from China, cautious mood ahead of top-tier US data prod Yen pair sellers.
• Hawkish BoJ concerns contrasted with downbeat US data, Treasury bond yields to lure bears the previous day.
• More clues for Fed policy pivot in 2023, BoJ’s exit from restrictive measures eyed for clear directions.

USD/JPY licks its wounds after posting the biggest daily loss in a week, defending the previous day’s the pullback from the yearly top ahead of the US data about inflation, employment and the growth conditions. With this, the Yen pair retreats from intraday high to around 145.90 amid early hours of Wednesday’s Tokyo open.

US 10-year Treasury bond yields seesaw at the lowest level in 13 days while making rounds to 4.12% after refreshing the multi-day low on Tuesday. That said, the downbeat US data contrasted with the hawkish Bank of Japan (BoJ) bias to drag the USD/JPY pair from the highest level since late 2022. However, the cautious mood before the US statistics and challenges to sentiment prods the Yen pair traders of late.

Among the key fallouts of the US statistics, the US Conference Board's (CB) Consumer Confidence Index gained major attention as it slumped to 106.10 for August from a downwardly revised 114.00 prior (from 117.0), versus 116.0 market forecasts. That said, the US JOLTS Job Openings slumped to the lowest since March 2021, to 8.827M for July versus 9.465M expected and 9.165M prior (revised from 9.582). Additionally, the US Housing Price Index eased to 0.3% MoM for June from 0.7% prior and 0.2% while the S&P/Case-Shiller Home Price Indices improved to -1.2% YoY from -1.7% previous readings and -1.3% market forecasts.

The US data flagged fears of the Fed’s policy pivot in 2023 as Chairman Jerome Powell’s Jackson Hole speech highlighted the data dependency for future moves. With this, the CME’s FedWatch Tool signaled a 16% chance of a rate hike versus 20% prior. The same propelled Wall Street benchmarks and weighed on the US Treasury bond yields, as well as the US Dollar.

At home, Japan’s Unemployment Rate marked 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.

Further, Japanese Finance Minister Shunichi Suzuki also said on Tuesday that the government “will consider economic measures to be adopted after September.”

However, 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. That said, the report concluded that the government must work closely with the Bank of Japan (BoJ) to achieve sustained wage growth. Hence, the hawkish bias about the BoJ gained momentum and joined the downbeat yields,as well as the US Dollar, to initially weigh on the USD/JPY.

Recently, US Commerce Secretary Gina Raimondo’s complaints about the hardships for the US firms in China prod the USD/JPY bears. On the same line could be the International Monetary Fund’s (IMF) readiness to be more cautious while allocating the Special Drawing Rights (SDRs) in the future, due to the current environment of higher interest rates and inflation.

Amid these plays, S&P 500 Futures struggle to extend the three-day uptrend while the US Dollar Index (DXY) remains sidelined around 103.55 after falling the most in six weeks.

Looking forward, US ADP Employment Change, the final readings of the US second quarter (Q2) Gross Domestic Product (GDP) and the Personal Consumption Expenditure (PCE) are the key to watch.

Technical analysis

Despite the latest pullback from a two-month-old ascending resistance line, close to 146.90 by the press time, the USD/JPY pair remains on the front foot unless breaking a thee-week-long rising support line of near 145.55.