USD / JPY dips below 100.50 despite broad USD strength

• USD / JPY lost traction after climbing to multi-month highs.
• The fall in US Treasury yields appears to be weighing on the pair.
• The US Dollar Index is holding on to strong daily gains above 91.70.

Following Wednesday’s rally, the USD/JPY it extended its rally and reached its highest level since early April at 110.82. However, the pair reversed its direction in the second half of the day and was last seen shedding 0.25% on the day at 110.40.

Despite the continued strength of the USD, a sharp drop seen in US Treasury yields appears to be weighing on the USD / JPY. For now, the benchmark 10-year US Treasury yield is down 2.3% on the day to 1,541%.

On Wednesday, the sea change seen in the FOMC Projections Summary provided a boost to the dollar. With the number of lawmakers expecting a takeoff in the federal funds rate from zero in 2023 rising to 13 from seven in March, the US Dollar Index (DXY) gained nearly 1% on the day. At the moment, the DXY is up 0.42% on the day at 91.77.

Hours earlier, data released by the US Department of Labor revealed that weekly Initial Unemployment Claims rose to 412,000 from 375,000. However, this data did not provoke a significant market reaction.

With an eye on the BoJ

On Friday, the Bank of Japan (BoJ) will announce its Interest Rate Decision and publish the Monetary Policy Statement.

In anticipation of this event, “We continue to uphold our vision for the Bank of Japan to do more and improve its monetary policy by easing even more, most likely by accelerating its GB to Japanese companies and SMEs,” said Lee Sue Ann, economist. of UOB Group. “Market expectations are now tilted that the BoJ has reached the end of the normalization line and will remain in a holding pattern in politics until at least April 2023, when Governor Kuroda is scheduled to leave the BoJ.”

Technical levels