USD/JPY gives back much of the BoJ-inspired gains and falls below 129.50

• USD/JPY is back more than 200 points from a multi-day high hit after the BOJ decision.
• Bets on lower Fed rate hikes, falling US bond yields weigh heavily on USD and put pressure.
• The PPI and US Retail Sales are the data waiting for investors.

The pair USD/JPY returns a significant portion of Bank of Japan (BoJ)-inspired gains to a multi-day high and returns below 129.50 during the first half of the European session on Wednesday.

The US dollar comes under strong selling pressure after a strong intraday rally and turns out to be a key factor attracting some sellers around the USD/JPY pair at higher levels. The firmness of the expectations of a less aggressive tightening of monetary policy by the Fed it triggers a further drop in US Treasury yields and weighs on the dollar. Indeed, markets now seem convinced that the US central bank will soften its hawkish stance amid signs of easing inflationary pressure and have been pricing in a smaller 25 basis point rate hike. in February.

Despite of strong intraday retracement of more than 175 pips from the 131.55-131.60 zonethe USD/JPY pair is still up almost 1% on the day after the dovish decision by the Bank of Japan. Japan’s central bank kept interest rates ultra-low and left its yield curve control measures unchanged, defying expectations for more aggressive signals. The announcement triggered a sharp drop in Japanese bond yields, recording the biggest decline since September 2003. This, in turn, could continue to weigh on the yen and support the USD/JPY pair.

Market participants now await the US economic agenda, with the release of the Producer Price Index (IPP) and monthly figures for Retail Sales later at the beginning of the American session. In addition, speeches by FOMC members and US bond yields could influence dollar price dynamics. Furthermore, traders will be guided by risk sentiment in the markets in general, which tends to drive demand for the safe-haven yen. This, in turn, should boost the USD/JPY pair and allow traders to take advantage of some short-term opportunities.

USD/JPY technical levels