- USD / JPY struggles to capitalize on its initial rally to highs of more than a month.
- Falling US bond yields weigh on the USD and limit the pair’s gains.
- The pessimistic comments from Kuroda, governor of the BoJ, should help limit any significant decline.
The pair USD/JPY it lacks a firm directional bias and ranged from tepid gains to minor losses at the start of the European session on Thursday. The pair is practically unchanged on the day around the region of 109.60, just below the month-long highs touched earlier in the day at 109.78.
A combination of divergent factors has not helped the pair capitalize on the previous day’s strong rally of around 115 pips, triggered by an impressive US inflation report. In fact, the headline US CPI posted the fastest rise since September 2008, accelerating to a 4.2% year-on-year rate in April. The data fueled speculation about an earlier-than-expected tightening by the Federal Reserve and sparked some short coverage around the US dollar.
However, a pullback in US Treasury yields has prevented USD bulls from opening aggressive positions and it has limited any uncontrolled movement for the USD / JPY pair. Aside from this, a pullback in US equity futures has offered some support to the safe-haven Japanese yen and further helped limit the pair’s gains. Having said that, decline remains supported amid concerns that recent spike in COVID-19 cases could hamper Japan’s fragile economic recovery.
Apart of this, pessimistic comments from Bank of Japan Governor Haruhiko Kuroda, they have also acted as a headwind for the JPY and have offered some support to the USD / JPY pair. In his scheduled speech before the Japanese parliament, Kuroda has pointed out that the risky purchase of assets from the Bank of Japan is part of its ultra-flexible policy and a necessary step to achieve the inflation target of 2%.
Kuroda has further added that cutting BoJ short / long-term policy interest rates remains an option if further eased. This, in turn, has supported the prospects for additional short-term gains for the USD / JPY pair. That said, the lack of a solid continuation buy warrants some caution for the bulls before positioning for any further upside.
Market participants are now awaiting the US economic calendar highlighting the release of the IPP producer price index and weekly initial jobless claims to gain some momentum. This, along with US bond yields, will influence the USD. Investors will also follow the signs of broader market risk sentiment to seize some short-term opportunities.
USD / JPY technical levels
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